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The Countryside is Booming…But for How Long?

Volume XIX, Issue 39

Distant view of a farm in the countryside of France

According to Meilleurs Agents, there’s a boom happening in the rural areas and suburbs, with a decline in the pool of buyers…

Crowded streets showing urban living in France

Urban living

The new real estate geography was confirmed in early October: the disenchantment with large metropolises is increasing based on the amount of interest in the countryside. Gone is the hierarchy of price increases that prevailed until July 2020, with Paris at the top of the scale, followed by the 10 largest French cities and, at the bottom, rural areas.

Today, this ranking has been reversed!

A quaint stone house in the French countryside with sheep grazing in the foreground

Countryside living

Since the beginning of the year 2021, rural areas have seen the strongest increase at the national level (+6.6 percent). That is to say, more than double the figures recorded by the 10 largest metropolises in France during the same period. And especially…far ahead of those of the capital (+0.1 percent)!

The Paris region alone sums up the paradigm shift: the further potential buyers move away from its center, the higher the price increase. In one year, Paris lost 1.2 percent while the inner suburbs gained 2.7 percent and the outer suburbs 5.2 percent!

Map of France showing the evolution of property prices in the largest cities

As is the case every year at the same time, real estate tension weakened in September! We note however that far from being worrying, this seasonal drop can be explained by the small number of prospective buyers who start their projects during the summer vacations. This phenomenon affects all major French cities without distinction.

The Real Estate Tension Index (l’Indice de Tension Immobilière, ITI) of Meilleurs Agents records an average decrease of two points. There are now 11 percent more buyers than sellers in Marseille, Toulouse, Bordeaux and Lille. By way of comparison, this rate reached 14 percent in June in the capital of Occitane. This ratio even fell, with the return to work, to nine percent in Paris, Nice and Nantes as well as to eight percent in Montpellier and Rennes. As for Lyon, it now has only 5 percent more buyers than sellers, compared with 10 percent in June.

Map showing the evolution of property prices in the Paris region

In other words, an almost perfect balance. However, it is in Strasbourg that the pool of potential buyers is shrinking the most drastically. In one month, the city saw its ITI drop from 16 to 11. While the situation is not surprising in almost all of France’s 11 largest cities, it may nevertheless raise questions in the prefecture of the Grand Est region.

The specter of a lasting decline in demand seems unlikely, as rates will remain low and banks will continue to play their role as financiers: At 1.08 percent in July (all loan terms combined), according to the Banque de France, the average rate for real estate loans has reached an all-time low. In addition, despite the prevailing pessimism, the announcement of the compulsory nature of what was previously only recommendations of the High Council for Financial Stability (HSCF) in terms of real estate credit should not change anything.

The reason? These measures, which will become binding as of January 1st of this year, were already widely applied by the banking institutions. For the record, the debt ratio of households is limited to 35 percent including insurance, the maximum duration of the loan cannot exceed 25 years (27 years under certain conditions) and banks are only allowed to deviate from these rules up to 20 percent of their quarterly volume of new loans, with a particular focus on purchases of primary residences and first-time buyers.

However, at present, only 20.9 percent of accepted financing files do not comply with HCSF standards (High Council for Financial Stability), i.e. French credit production is based on sound foundations. This means that individuals will always have access to credit without too many difficulties. Not to mention that many of the “off-limits” applications concern rental property investments and purchases of second homes. That is to say, buyers who generally have additional savings and who can afford to buy a second home.

As for the European Central Bank’s latest discussions on slowing down its asset purchases under the EPPP (Emergency Pandemic Purchasing Program), while they may cause some to fear that the credit tap will be turned off, they should just result in a stabilization of borrowing rates. Indeed, no announcement concerning a rise in key rates has been made, reflecting a status quo that should push banks to continue lending at least in the medium term!

My prediction? This obsession with the countryside will be short-lived. Today I received an email from one of our clients who wrote: “As you know the allure of owning a house in the French countryside can be overwhelming, but its romanticized ideal does not live up to the reputation unless of course you like the isolation. We were happy to have been isolated during the pandemic with spectacular views and nice walks through the countryside, but as things approached normalcy it seemed like we were ready for some more action, and some place that wasn’t so hot.”

An overview of Covid-19 statistics in France

Graph showing the Covid vaccination rates in France

This is exactly what I think will happen to many folks as we return to normalcy. On the streets of most French cities, thanks to a very high vaccination rate, and a low number of active Covid-19 cases, masks are only required indoors and life is back to relatively normal. Anyone feeling isolated or alone will want to come out of their protective shell and face the world again. As a result, I predict that in the next couple of years, the cities will see a real resurgence and the countryside will be waning once again.

A bientôt

Adrian Leeds superimposed on the side of Galleries Lafayette in ParisAdrian Leeds
The Adrian Leeds Group®

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2 Comments

  1. CJ Belman on October 14, 2021 at 10:47 am

    How may I find out about living in or near Lyon? Do you (Adrian) have properties for rent or sale there? How desirable is that area?
    Thank you,

    CJ

    • Adrian Leeds Group on October 15, 2021 at 7:41 am

      We can assist anywhere in France!

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