Purchasing Power Down All Over France
Volume XX, Issue 23
MeilleursAgents.com reports that purchasing power for real estate is down everywhere in France. This is thanks to the rise in interest rates and the increase in property prices that is global. So, it’s not exactly a great time for future buyers. Inflation reached a record high of 7.5 percent over one year in April in the euro zone and, according to INSEE, was 5.2 percent in France in May. The European Central Bank (ECB) could announce a further increase in interest rates in July. This is the first time this has happened since 2011.
The average borrowing rate in France is now around 1.55 percent for a 20 year loan, which is already an increase of 0.55 points since the beginning of the year, according to the online broker Empruntis. It’s not too late to make a real estate purchase, however. With a very high inflation rate and interest rates still rather interesting, borrowers can take advantage of negative real rates. (A negative real rate is when inflation is higher than the nominal rate.) Moreover, buying a property today allows you to fix the cost while the price of everything else will continue to rise. In the short term, and despite an uncertain economic context, it is therefore good for the market. But, be careful to readjust your budget with your banker to avoid disappointment!
The real estate purchasing power is calculated for a representative household with the median income in the city, taking a loan over twenty years with a debt to income ratio of 33 percent and an interest rate of 1 percent in January 2022 and 1.5 percent in June 2022. Since the beginning of the year, the French have seen their purchasing power slashed. On average, the borrowing capacity of households has decreased by 5 percent following the 0.5 point increase in interest rates. Each increase of 0.1 point mechanically leads to a loss of 1 percent of borrowing capacity.
Strasbourg is feeling some of the worst losses. Because the price of real estate increased the most in one year (+6,5 percent is 3 875 €/m2 currently), it’s feeling the pinch the most, too. With the same budget, buyers in Strasbourg must sacrifice five square meters of living space. The same calculation can be made in Marseille, where buyers have already lost four square meters. In Bordeaux, Toulouse, Nice, Nantes, Montpellier and Rennes, less three square meters, and in Lyon and Lille, two square meters.
In Paris, the fall in prices recorded since the beginning of the year of -0.4 percent has not been able to compensate for the rise in interest rates. In the capital, buyers have therefore lost one square meter of real estate purchasing power. In a city where it is often necessary to be satisfied with small spaces, this drop is not easy to discern.
Aware of these issues, buyers are returning to the major cities, where the real estate tension indexes (ITI) are up almost everywhere. Including in Paris (18 percent today compared to 15 percent three months ago), which is finally regaining some color. Parisian real estate prices have increased by 0.2 percent in one month (10,187€/m2). It’s not enough to jump up and down, but after nine months of consecutive declines, it was worth noting. It’s the same scenario in all major French cities…or almost. Only Toulouse and Lille are exceptions, with price drops of 0.3 percent and 0.4 percent respectively in one month.
Lille has been in the red for one year. The northern capital has seen its prices fall by 1.6 percent in one year, with the price per square meter now set at 3,438€. Perhaps the high concentration of medium-sized cities in the direct vicinity of Lille explains this phenomenon.
On the other hand, the real estate market in Marseille continues to shine: prices there have increased by 1 percent in one month (3,541€ per square meter) for a 5.3 percent increase in one year. In Bordeaux and Lyon, the real estate market is showing great stability, while the other major cities are showing a surge, with price increases of between 0.3 percent and 0.6 percent. However, we are still far from the spring performances of previous years.
For many borrowers—first-time buyers in particular—access to credit is more difficult today than it was six months ago. The rise in interest rates is also leading to a more or less substantial loss of budget for French households. However, in anticipation of further increases in loan rates, future buyers are now rushing to complete their projects.
The bottom line: get in now, with or without a loan, to counter inflation by making an investment in a real asset!
Special Note: According to a recent article in CNN, “Paris, which has topped the ECA International list in the past, dropped out of the top 30 (of the world’s most expensive cities for 2022). Madrid, Rome and Brussels all fell as well. Nearly every major Eurozone city saw a drop in the rankings this year as the euro performed worse in the last 12 months than the US dollar and British pound. External factors like politics and international conflicts can also play a role. Russia’s invasion of Ukraine and the accompanying sanctions placed by many countries meant that Moscow came in 62nd place and St Petersburg landed in 147th. Europe’s most expensive city is Geneva, Switzerland, which was in third place after Hong Kong and New York City. Switzerland uses the Swiss franc instead of the euro. The coronavirus pandemic has, of course, played a role in global supply chains and other economic factors.”
The Adrian Leeds Group®
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