At the end of the year, the real estate market seems to have seized up, certainly under the combined effect of the rise in mortgage rates and the scarcity of credit, but not only. If a downward momentum in prices is about to be triggered, most sellers are still in denial, while buyers are waiting for this drop even though the rise in rates in 2023 is likely to take place. cancel the gain. In this period when the market is in full evolution, the real estate network l’Adresse demonstrates that waiting is not necessarily the right calculation, because time plays against both buyers and sellers.
In 2023, the importance will be to buy and sell at the right price…
The end of 2022 is marked by a slowdown in activity: buyers sidethere is a wait-and-see attitude linked to the economic situation, the rise in the cost of energy and the cost of living as a whole, but also and above all to credit conditions, and in particular to the increase in interest rates.
Selling sidethe market is also changing: ¾ of the agencies in the l’Adresse network have seen an increase in sales times and an increase in negotiation margins since this summer, which are now reflected in lower prices.
“At the end of the year, the market is clearly on a downward dynamic but not without impact: on the seller side, we see every day the difficulty for most of them to understand that after so many years of price increases , the market is reversing… And on the buyers’ side, many are putting their project on hold to capitalize on a fall in prices, but without taking into account the continuation of the rise in rates. It is, in my opinion, a dangerous bet. analyzes Brice Cardi, president of the Address.
On the selling side: why rising rates will inevitably lead to lower prices
At the end of 2022, in just 12 months, mortgage rates fell from 1% to 2% on average over 20 years, leading to a drop in borrowing capacity and the budget of potential buyers. In other words, for the same property, the number of potential borrowers, all other things being equal, decreases with the rise in rates which should continue in 2023 in the current context of inflation and rising financial market rates. Waiting for a purchase offer at a high price is therefore not necessarily the right calculation either…
For €1,000 monthly payment per month over 20 years, borrowers have already lost €20,000 of borrowing capacity in 1 year. If credit rates reach 3% over 20 years in 2023, which is very likely given the evolution of refinancing rates, the decline in borrowing capacity will be €37,000 by the end of 2023, in only 2 years old.
“The decline in borrowing capacity will necessarily have an impact on the price… This is already the case because it is not always possible to compensate for the decline in the amount of credit obtained by personal contribution so the buyer’s budget is falling! It is therefore currently for us, professionals, to take the time to explain it to the sellers. We have developed simple and digital tools to present the criteria according to which market prices are determined. It is not the real estate agents who set the prices of the real estate, it is the market conditions and in particular the supply and the demand, but not only. It is up to us to decipher these criteria, to explain them, and even to anticipate them! » complete Brice Cardi.
In addition, sellers should also understand that the longer they wait to sell, the fewer potential buyers there will be able to buy their property at a given price: to buy the same property at €250,000, in 2022, to compensate for the rise in rates, you have to earn €370 net more per month than in 2021, all other things being equal. In 2023, it will be necessary to earn a total of €700 more than in 2021 to borrow the same amount while maintaining a debt level of 33%!
On the buyer side, the fall in prices is likely to be slower than the rise in rates in 2023
As a reminder, credit rates increased in 2022 by 1 point in one year, rising from 1 to 2% over 20 years on average, and they could reach 3% by the end of 2023 over 20 years. Even if we expect an average price drop of 5% in 2023, this new rate hike will lead to a 50% increase in the cost of credit. Finally, the purchase of a property that was worth €260,000 in 2022 but will only be worth €247,000 in 2023 (-5%) will ultimately cost its buyer 4% more, i.e. €14,000 more .
“In 2022, the French, who are 80% to use a loan to buy a property, have lost about 10% of borrowing capacity, while prices over the same period have not fallen or very low in some areas. And the trend should continue in 2023. Waiting for a price drop of 5 to 10% is not a good calculation in the current context of rising credit rates, because the final cost of the purchase could be higher… A condition of being able to borrow, because today that is the whole issue” explains Brice Cardi.
Conclusion: a changing market that needs to be understood to make the right choices
In 2023, given the downward momentum that is set in motion, there is a greater risk of experiencing a fall rather than a rise in real estate prices. Selling immediately at the right price is to curb the beginning of this decline and prevent your property from quickly finding itself off the market, especially since new elements are today very impacting on the price level: the credit rates but also the level of energy performance of the goods which can lead to the worst rated (F and G) a discount from 5 to 20% depending on the region! It remains to be seen whether the fall in prices that is beginning will be sufficient to offset the rise in rates which is likely to continue in 2023…
“However, we remain confident about the dynamics of the market in 2023. Many indicators remain favorable such as the low level of unemployment, wear and tear rates which should increase again in January, French confidence in stone… real estate professionals, to provide the reassurance that the French need in this turbulent period” concludes Brice Cardi.