Housing sales have decreased, leading to a 7-8% drop in existing home prices, yet new developments remain stable. Despite a 2.5% decline in new home sales, individual buyer transactions rose by 4.3%, driven by lower mortgage rates and the impending end of the Pinel rental scheme. While overall sales figures are low, new housing prices average 5,000 euros per square meter, influenced by development costs rather than traditional supply and demand dynamics. Price trends vary regionally, with some areas experiencing declines and others notable increases.
When housing sales decline, one might expect prices to follow suit, as per the principle of supply and demand. However, this assumption holds true for the older real estate market but not necessarily for new developments. Over the past two years, prices in the existing housing sector have dropped by approximately 7% to 8%, largely due to elevated interest rates making it challenging for many families to pursue their homeownership goals. According to Pascal Boulanger, the president of the Federation of Real Estate Developers (FPI), during an economic briefing on November 14, “prices in the new housing market are holding steady”. Despite a 2.5% year-on-year decrease in new home sales in the third quarter of 2024, the situation is nuanced.
This trend indicates a deceleration in the drop of sales, primarily due to a 4.3% increase in sales to individual buyers. In contrast, bulk transactions to institutional investors and social landlords have plummeted by nearly 13%, a shift attributed to the conclusion of buyback initiatives from CDC Habitat and Action Logement designed to bolster developer operations. Nonetheless, Boulanger remains cautiously optimistic about the rise in individual sales, which is largely fueled by increased activity from rental investors, seeing a 5% uptick, compared to a more modest 3.9% increase in owner-occupier sales.
Stability of Prices in the New Housing Market
Boulanger attributes these dynamics to the recent decline in mortgage rates, providing households with enhanced financial flexibility. He also notes a windfall effect due to the impending expiration of the Pinel rental investment scheme on December 31, 2024. This initiative allows buyers of new homes intended for rental at moderate rates to benefit from income tax reductions. “Rental investors are seizing the moment, saying it’s now or never to take advantage of the Pinel scheme,” Boulanger observes.
Despite this, the FPI highlights that sales figures for homes to individual investors and owner-occupiers, standing at 4,442 and 7,672 units respectively, remain “extremely low”. So, why is there a stagnation of prices, averaging at a substantial 5,000 euros per square meter? Boulanger clarifies, “Prices in the new market do not adhere to the traditional supply and demand principles like the older market. They are influenced by technical factors, as developers must account for land costs (which continue to be limited and expensive), new construction regulations, and material expenses.”
Price Variations Across Urban Areas
In reality, after two years of challenges in the real estate sector, prices in the new market are seeing slight declines but not uniformly. Data from the FPI indicates that while the average price per square meter remained stable in Île-de-France during the third quarter, it fell by 3.1% in other regions. Certain urban areas are experiencing even steeper declines, including Tours, Le Havre, Dijon, Clermont-Ferrand, Laval, and Montpellier. On the flip side, regions such as Reims (25.4%), Aix-en-Provence (10.3%), Nice (8.2%), and Annecy (6.2%) are witnessing significant price surges.
“However, can we rely on accurate statistics in cities where only one or two projects have been launched recently?” Boulanger questions. While this may be a valid concern, even if there’s just one new housing project underway in a city of interest with prices dropping by 10%, it would be unwise to hesitate!