France – Real estate : Buoyant residential market in 2021, slowdown in 2022

France – Real estate : Buoyant residential market in 2021, slowdown in 2022
  • Summary
  • Recent developments
  • Positive fundamentals
  • Headwinds to the recovery

In resume

The residential market held up well in 2021 against the exceptional shock caused by the public health crisis. In 2022, it will remain fairly buoyant, but should experience a slowdown: a drop in sales of around 10% and a clear slowdown in prices, 3% on average after 6.7% in 2021. This is due to the slight tightening of lending conditions (following the recommendations of the HCSF), to high inflation and to the rise in rates, which should however be gradual and more measured than that of market rates.

France – Real estate : Buoyant residential market in 2021, slowdown in 2022

Ten-year OAT yields recovered significantly in the first half of the year due to the sharp rise in inflation, the recovery in inflation expectations and the expected increase in key ECB rates. They are expected to remain high in the coming months, 3.1% at the end of 2022 and 2.8% at the end of 2023. Mortgage rates are expected to rise but less strongly: they are not dependent on OAT rates; competition is strong and mortgages are a call product; the level of mortgage rates is capped by the wear rate (maximum rate with insurance, fixed at 2.40% over 20 years). The windfall effect will decrease and buyers will be more hesitant in the face of rising interest rates and high price levels. However, demand should remain fairly strong thanks to the safe haven effect, the retirement effect, the favourable economic environment and the search for greener housing. Also, buyers can play on several factors to offset the rise in interest rates without an equivalent drop in prices, such as by making a slightly larger down payment or choosing a smaller or less high quality property.

Olivier ELUERE, Economist