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Should you complete your real estate project now or wait a little longer? This is definitely one of the most frequently asked questions right now. To answer, let’s discover in this article some themes that are expected to dominate the real estate market next year to determine what the real estate prospects are in France for 2023.
Rising interest rates tighten loan terms
The European Central Bank (ECB) began its round of monetary policy tightening in mid-2022 to combat high inflation and is expected to continue doing so until price increases reach record highs. In France, annual inflation reached 6.2% in October 2022. In the eurozone, it reached 10.7% over the same period.
This is why markets expect lending conditions to get tougher in 2023, as the ECB’s inflation target is 2% over the medium term. However, current inflation is almost 5 times higher than target inflation.
The ECB’s rate hikes have an impact on mortgage rates, which have continued to rise this year (and this situation is expected to continue next year). It therefore becomes more and more expensive to obtain a mortgage to finance, for example, the purchase of an apartment or a house.
Thus, tightening conditions for obtaining a loan leads to a decline in the number of loans granted.
According to the CSA Credit Housing Observatory, at the end of October 2022 the annual production of loans had decreased by more than 10%, while the number of loans disbursed decreased by almost 12% (while it had increased by just over 1% in end of October 2022). same period in 2021).
This situation is even more difficult for households with the lowest incomes due to the evolution of the usury rate and the decline in their debt capacity.
As a reminder, the usury rate is the maximum annual percentage rate at which commercial banks are allowed to lend their money. As it is calculated quarterly by the Banque de France, it does not accurately reflect the evolution of ECB interest rates. This therefore means that banks pay the ECB more than they receive for granting a loan. Many files are therefore rejected.
New home prices are expected to continue to rise in 2023
The price of new homes is expected to continue to rise next year for several reasons.
The first is certainly the sharp increase in the price of materials, which makes it more expensive to build new homes (not to mention the increase in energy and transport prices for the latter).
The war in Ukraine, which began in February 2022, has in fact exploded the price of many metals and other materials used in construction. And this, after an increase already observable after the supply problems related to the Covid-19. Wood, steel, plastic, copper or even insulation boards, tiles or plaster have risen sharply.
Labor costs have also increased, which also makes new construction more expensive. In the European Union, hourly labor costs increased by 3.3% in the construction sector in the second quarter of 2022 compared to the second quarter of 2021, for example
Finally, new obligations and new building standards to meet energy and environmental requirements such as RE2020 to combat climate change also lead to an increase in the price of new homes.
Read also:
Real estate: is it worth buying despite the increase in interest rates?
What prospects on the old real estate market?
Some areas in France are highly sought after especially by foreign clients (such as the PACA region or Paris), which could lead to real estate shortages and increase the price due to high demand and limited supply.
But prices in the old housing market could fall next year. This could in particular be due to owner-sellers trying to get rid of them before it becomes too complex for buyers to get a mortgage or before certain rules on “energy screens” are put in place in France.
The climate and resilience law stipulates that the rental of housing classified as “energy sieves” is prohibited in France. Housing in classes G, F and E will no longer be rentable in 2025, 2028 and 2034 respectively.