Find out the latest on the Paris property market! (credit)
After the adventurous last year in the Paris real estate market, with many unprecedented factors, there’s a lot to catch up on. As local experts in the Paris property scene, we’re here to guide you through all the latest ins and outs of the market. Join us as we take a look back on crazy 2023 and discuss what’s on the horizon for 2024. From recent trends to future forecasts, these valuable insights will help you navigate the Paris real estate landscape with confidence. Plus, our Paris Property Search team is always on hand to help you find your dream apartment in Paris!
The Perfect Storm of 2023 and Parisian Real Estate
Real estate transactions were greatly reduced across France in 2023 and prices decreased in most areas. Let’s look at the impact in Paris. Paris is the market that fared best across France during the downturn, albeit with a decline of 22% in real estate transactions in 2023 vs. 2022 and decline of 6% compared to the average over the last 10 years.
2023 Recap Part I: First, we saw mortgage interest rates rapidly climb to their highest peak in over 14 years
Between 2000 and early 2002, French mortgage rates (for resident buyers) were around 5 to 5.50%. They fell until 2005, reaching a low of less than 4% but rose again until 2009 and the subprime crisis, to return to over 5%.
Since peaking in 2009, French mortgage interest rates fell gradually until early 2022, hovering just above the almost too good to be true rate of 1.00%. With economic pressure from the war in Ukraine and other global events, central banks around the world started raising interest rates to combat rising inflation.
2022: Rates Start to Rise! Since March 2022, the average mortgage interest rate in France rose from 1.06% to 4.24% in 23 months, before falling back to 3.99%. This created a massive shock to the French real estate market. Already losing purchasing power from inflation, suddenly many prospective home buyers could no longer afford mortgage payments at the new rates. Real estate transactions fell, prices started to soften and anyone who didn’t need to sell took their property off the market. This was particularly the case in Paris.
Did you get a French mortgage in 2023? Not to worry – our clients who borrowed at the height of rates in 2005 can refinance when rates decline.
Rule of Thumb about Refinancing: The rule of thumb is that the proposed interest rate must be 1% less than your current rate in order for you to save money with a refinance. French banks offer fixed rate mortgages that are fixed for the entire loan duration, but as our favorite French banker likes to say, “France only offers variable rate mortgages that vary on the way down.”
Today: Mixed Messages on Rates. The message from the European Central Bank is rates are headed down. However, we’re getting mixed messages from our banks themselves. Some started to drop rates in February while others remain cautious and are keeping rates stable. One thing is clear, mortgage sales were very low for all French banks last year, so they will need to start lending soon with more flexibility in 2024 to make up for those losses.
KEY TAKEAWAY: “In over twenty years, we had never seen French banks stop lending. But that’s exactly what happened in 2023.”
2023 Part II: We had the French “Taux d’usure Crisis”
The taux d’usure (the “usury” rate) is the maximum interest rate that banks are allowed to charge in France. It’s similar to the American APR in that it incorporates some other charges linked to borrowing to buy real estate such as insurance and part of the closing costs. As interest rates in 2023 were skyrocketing on a monthly basis, the taux d’usure was completely out of touch with market reality, meaning banks could not afford to lend at the government-dictated rate.
Why did this happen? With interest rates rising so fast, the wholesale cost of borrowing for the banks was bumping up against the maximum legal lending rate in France, so they began to lose money when they made a mortgage loan.
The Unspoken Rule Among Banks – Stop Lending: Banks made their lending criteria so difficult that few clients qualified and some of them simply stopped lending. In over twenty years of finding mortgages for our buyers in France – including countless economic crises (examples: 9/11, the from 2009-2014, the Lehman Brothers bank default in 2008, the Greek Euro crisis in 2015, Covid), we had never seen the French banks stop lending. But that’s what they did last year.
The French government finally changed the taux d’usure to be updated on a monthly basis mid 2023 and banking slowly started to recover in December 2023. They are back to quarterly updates now as of January 2024, which is a strong sign that French mortgage interest rates have stabilized. We are proud to say that we were one of the few French mortgage brokers who continued to be able to secure mortgages for our clients, both resident and non resident, in 2023.
2023 Part III: New home energy efficiency laws take effect in France
The French government voted in the “Loi Climat et résilience” to make changes regarding home energy efficiency. The goal is to reduce greenhouse gas emissions and reduce gas and electricity consumption.
Homes with the lowest energy efficiency ratings (Diagnostic de performance énergétique or DPE) will soon be banned from the rental market unless they undergo renovations to make them more energy efficient.
From January 1, 2023, properties with the lowest energy efficiency (G) and which consume over 450kWH per square meter per year, will no longer be able to be rented out. This rule will extend to all G-rated properties from 2025, all F-rated properties from 2028 and all E-rated properties from 2034. As a result, property values are softening for the lower ratings as buyers must anticipate renovation costs if they plan to rent their apartment.
In Spite of Headwinds: Looking back at 2023, the overall price decline was about 6.9%, but the real story was the decline in volume of transactions: -22%. But the most desirable properties continued to sell.
The average price per m² in Paris was €9,770 in Q4 2023.
KEY TAKEAWAY: “Premium Paris apartment prices are much more resistant to market shocks than the rest of the market.”
2024 Prediction: This decreasing price trend is set to continue into spring 2024. We can expect an average price per m² of €9,410 for Paris in April 2024 (-8.1% year on year). This would bring us back to average Paris real estate prices of summer 2018.
One thing is clear: Prices for premium Paris apartments are much more resistant to market shocks than the rest of the market.
Summary of Price Changes by Arrondissement: Annual price declines range from 2.8% in the 8th arrondissement to 12.1% in the 13th. The steepest declines were mainly the least expensive arrondissements on the eastern outskirts. Important: the most sought after quartiers such as the 6th, 7th and 8th arrondissements and this historic center around the islands and the Marais saw the smallest declines.
KEY TAKEAWAY: “The safest investment is a top quality Paris apartment in the best neighborhoods.”
So is Paris “on sale” right now?
While we may not have arrived at market stabilization after the massive shocks of 2023, remember that the Paris property market has limited stock. There is a housing shortage in Paris and stable demand from international buyers, growing families and students coming to Paris to name but a few. We continue to have more buyers than sellers and only so many nice apartments for sale in our beautiful city. This creates a limit to how far prices can fall. It’s a very good time to buy in Paris right now, but you will not see massive price discounts on the best “premium” apartments.
If you are considering investing in Paris, here’s the good news – it’s almost impossible to lose money by investing in a top quality Paris apartment in a good neighborhood. Looking back at 2023 and 2009, arguably the worst markets among the many economic shocks we have been through, the best apartments (if put on the market for sale) only lost about 3% of their value at the time and then bounced back. As an example, clients who sold the apartment we found for them in 2013 at the end of 2023 sold for 18.3% higher than the initial price including closing costs and had a gain on sale of more than €300,000.
KEY TAKEAWAY: “The average price per m2 should be used as the bottom end of the price range in a given area.”
Keep in mind that the Paris notaire statistics used to calculate the average price per m2 take into account all Paris apartments – the ground floor, the caretaker’s lodge, the maid’s chambers, apartments with defects and strange layouts. The price decline is an indicator but not always applicable to the high quality apartments located in the charming, highly sought after neighborhoods that our clients typically seek (beautiful light, smart layout, classic Parisian amenities, etc.). These apartments have held up remarkably well through the various economic crises we have seen. Further, each Paris arrondissement is split into four neighborhoods. The average price per m2 can differ by thousands between neighborhoods in the same arrondissement. As international clients look for the best quality apartments, the average price per m2 should be used as the bottom end of the price range in a given area.
2024 Forecast: Slowly Improving
The Chamber of Notaires of Paris predict that the price decline is set to gradually continue in spring 2024, and their outlook for the coming months remains downbeat despite positive announcements by some banks of reduced mortgage interest rates to come which should kickstart the market and increase demand, therefore stabilizing price.
The Paris real estate market should continue to improve over the coming months with the number of Paris property transactions. Our team has been very busy since January with many international buyers actively searching the market. Our real estate agent colleagues confirm the same.
We predict that with some Parisian premium apartment owners who held back to sell in 2023 we’ll see more coming on the market in the months to come.
Ready to call Paris home in 2024?
If you’re searching for your dream apartment in Paris, reach out to our Property Search team at [email protected] to find out how we can help you every step of the way. In addition to finding you the perfect property, we can help you successfully navigate the Paris real estate market, handle the purchase process and offer tips on remodeling and getting the best returns on investment – all based on decades of tried and true experience in the Paris property market!
(Source for Paris real estate charts and statistics : ADSN-BIEN – Notaires du Grand Paris)
