Paris Property Market Normalizing with Post-Pandemic Normalcy
Volume XX, Issue 10
The lackluster results of the fourth quarter did not prevent a new record of activity in 2021, with 182,000 resale houses sold in Ile-de-France, slightly above the 180,300 sales of 2019 (+1%) and 12% above the sales volumes of 2020.
The market dynamics remain the same. The health crisis and its restrictions, the refocusing on the personal sphere and the development of telecommuting have whetted households’ appetite for real estate.
Still very favorable credit conditions and an accumulation of savings have made it possible to realize projects that have sometimes been transformed by new expectations (desire for space and greenery, possibility of moving away from the workplace).
In an unusual pattern, we have thus seen strong price increases for houses in the Grande Couronne, while values have stagnated in the Capital. These trends continued in fourth quarter 2021, but with prices now rising at a slower pace across all markets, no doubt in line with the recent slowdown in real estate activity.
The slowdown in the fourth quarter of 2021, and slightly slower price increases, could be the first signs of a gradual landing and a form of normalization in the market, in an environment that is still buoyant but where uncertainties are increasing, particularly regarding interest rates.
Sales volumes of existing homes fell by 20% from fourth quarter 2020 to fourth quarter 2021. The comparison with the exceptional fourth quarter of 2020 reinforces the decline. But the slowdown is there, with an increase in activity now limited to 4% compared to the average of the fourth quarters of the last 10 years.
On the other hand, early indicators point to good market resilience in January 2022 and a fair number of pre-sale contracts in February, which should turn into sales in the spring during the traditional period of high activity.
Overall, 2021 saw exceptional activity and sales volumes that were up 11% for apartments and 12% for houses compared to 2020. Once again, this growth is slightly less strong than that observed throughout France (+15%).
In 2021, the volume of sales of houses increased by 20% compared to the average of the last 10 years and that of apartments by 18%.
After remaining somewhat on the sidelines, the Paris market has regained some color. Sales volumes have jumped by 16% from 2020 to 2021 and, above all, are 11% above the annual average of the past 10 years. However, a very slight downward trend can be seen in prices. Perhaps this has allowed new entrants to realize their desire to become homeowners in the Capital?
The Notaires du Grand Paris have also identified new behaviors in the Capital that could explain this rebound. The savings made during the confinements encourage some parents to make gifts to their children with a view to acquiring a home. Some investors are accepting very low yields in order to have the security of a Parisian location, or are taking their profits from the stock market and repositioning themselves on real estate in the Capital.
From the fourth quarter of 2020 to the fourth quarter of 2021, the annual increase in prices of resale homes continued (+2.7%) but at a slightly slower pace than in the third quarter (+4%).
Once again, the strongest price increases were for houses (+7% in one year in fourth quarter 2021).
Taking all geographic sectors together, and adding Paris, which has a moderating impact, apartment prices in the Paris region only increased by 0.6% in one year in the fourth quarter of 2021, a much slower pace than consumer price inflation (2.8%).
In Paris, values are once again trending very slightly downward, between the third and fourth quarters of 2021 (from €10,780 to €10,600 per square meter). In one year, prices fell by 1.6% in fourth quarter 2021. According to our leading indicators on pre-sale contracts, we expect a price per square meter of €10,550 in April 2022, which would limit the annual price decline to 0.8%. In the end, compared to the high point in November 2020, prices per square meter in the Capital would fall by €310 and 2.9% in one and a half years.
According to our leading indicators on pre-sale contracts, in April 2022, the annual increase in prices would be 1.7% for apartments in the Petite Couronne but still 3.6% in the Grande Couronne, and it would decline for houses to 5.1% in the Petite Couronne and 4.4% in the Grande Couronne.
The factors that supported activity and boosted sales in existing properties are still present (demographics, housing needs, precautionary savings, “pierre plaisir” and “pierre refuge”). More than ever, households want to become homeowners.
We hope, as has often been the case in the past, that the presidential election will have very little impact on the market. It is regrettable that the issue of housing is not the subject of more active concern by the candidates and is absent from the debates, even though it is essential for households.
However, a few elements of tension could become apparent during 2022. Interest rates are still very attractive, despite a very slight increase at the beginning of the year. In its February 15 “Rate Indicator” note, the Agence Nationale pour L’Information sur Le Logement (National Agency for Housing Information) observes an increase of “around 0.2 basis points for the best profiles,” “under the combined effect of inflation and the growth in government loan rates.” Once again, it must be reiterated that attractive interest rates and easy access to credit are the essential conditions for market fluidity.
In the end, and after three years during which the market has been running at full speed, the Notaries of Greater Paris expect the market to remain at a good level but to lose its exceptional character and return to a more serene and normal rhythm.
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The Adrian Leeds Group
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