France’s housing market momentum stalls

France’s housing market is noticeably cooling – with house prices falling, amidst declining demand and slowing residential construction activity.

In Metropolitan France, the price index of second-hand dwellings fell by 1.94% (-6.33% inflation-adjusted) during the year to Q3 2023, in stark contrast to the y-o-y growth of 6.36% in Q3 2022 and 7.43% in Q3 2021, according to figures released by the National Institute for Statistical and Economic Studies (INSEE). It was the first y-o-y decline recorded since Q4 2015.

Quarter-on-quarter, house prices dropped by 1.13% (-1.76% inflation-adjusted) in Q3 2023.

House prices have been falling in the centre. During the year to Q3 2023:

  • In Île-de-France, the country’s wealthiest and most populated region, the average apartment price fell by 5.26% (-9.49% inflation-adjusted) y-o-y to €6,490 (US$ 7,175) per sq. m., according to the La Chambre des Notaires de Paris.
  • In the Petite Couronne, the average price of apartments was down by 6.1% (-10.3% inflation-adjusted) y-o-y to €5,230 (US$ 5,782) per sq. m.
  • In the Grande Couronne, the average price of apartments fell by 4.01% (-8.3% inflation-adjusted) y-o-y to €3,350 (US$ 3,704) per sq. m.
  • In Hauts-de-Seine, one of the country’s most populous departments, apartment prices fell by 6.5% (-10.68% inflation-adjusted) y-o-y to €6,330 (US$ 6,998) per sq. m.

France’s house price annual change

In Paris, house prices have been declining in the past two years – it seems the capital’s high cost of living is prompting some rural relocations. In Q3 2023, the average price of existing apartments in the capital city fell by 5.26% (-9.50% inflation-adjusted) to €10,090 (US$11,155) per sq. m, based on figures from the La Chambre des Notaires de Paris.

In a recent study conducted by the University of Paris and King’s College London, almost half of Parisians think that the city is too expensive and 43% believe that they could find a better quality of life elsewhere. Since the Covid-19 pandemic, people have been moving away from cities towards greener areas.

France Average Price of Existing Apartments in Paris graph

Demand is falling sharply. Existing home sales in France were down by a huge 20% in the twelve months to October 2023 as compared to the same period last year, at 908,000 units, following a y-o-y decline of 5.2% in 2022 and an annual increase of 14.7% in 2021, according to the General Council for the Environment and Sustainable Development (CGEDD). Likewise, new home sales plummeted by 38.7% y-o-y to 54,835 units in the first three quarters of 2023, based on figures from the Ministère de la Transition Écologie.

Residential construction activity is also down. In the first eleven months of 2023, new dwellings authorized in France, excluding Mayotte, plunged by 27.3% y-o-y to 297,609 units, according to the INSEE. Over the same period, new dwelling starts fell sharply by 23.8% y-o-y to 223,048 units in Jan-Nov 2023.

The French economy, the euro zone’s second-largest, expanded by a modest 2.5% during 2022, following a 6.4% expansion in 2021 and a huge 7.7% contraction in 2020. However, the economy is projected to slow further, with the European Commission projecting a real GDP growth rate for France of just 1% in 2023 – at par with the forecast released by the International Monetary Fund (IMF).

France’s housing cycle

During the long housing boom which lasted from 1997 to 2007, French house prices surged by 150% (112.5% inflation-adjusted). Since then the French housing market has not moved much.

The market started to weaken in 2008, amidst the global financial crisis. Price falls were moderate, as have been price rises since then. After falling by an annual average of 1.7% in 2012-2015, house prices started to rise again in 2016.

Despite the pandemic, house price growth strengthened to 6.4% (6.32% inflation-adjusted) in 2020 and to 6.93% (4.1% inflation-adjusted) in 2021. These two years had been the highest growth since 2010.

During 2022, house prices increased by 4.69% from a year earlier but dropped 1.3% in real terms, amidst heightened inflationary pressures.

HOUSE PRICES IN FRANCE, ANNUAL CHANGE (%)
Year Nominal Inflation-adjusted
2008 -3.75 -5.41
2009 -4.09 -4.44
2010 7.60 5.86
2011 3.68 1.20
2012 -1.96 -3.44
2013 -1.81 -2.44
2014 -2.52 -2.79
2015 -0.50 -0.59
2016 1.50 0.99
2017 3.25 2.08
2018 3.34 1.41
2019 3.78 2.67
2020 6.40 6.32
2021 6.93 4.10
2022 4.69 -1.30
Sources: National Institute for Statistical and Economic Studies (INSEE), Global Property Guide

Property demand is plummeting

Existing home sales in France were down by a huge 20% in the twelve months to October 2023 as compared to the same period last year, at 908,000 units, following a y-o-y decline of 5.2% in 2022 and an annual increase of 14.7% in 2021, according to the General Council for the Environment and Sustainable Development (CGEDD).

From 2015 to 2019, existing home sales have been growing by 9.1% annually. Sales dropped 4.8% in 2020 during the onset of the Covid-19 pandemic.

France Number of Existing Home Sales graph

Likewise, new home sales fell by 12.1% q-o-q and by 39.7% y-o-y to a seasonally adjusted 16,201 units in Q3 2023, according to the Ministère de la Transition Écologie. The number of new homes sold has been declining q-o-q in the past six consecutive quarters. 

In the first three quarters of 2023, new home sales plummeted by 38.7% to 54,835 units as compared to the same period last year.

“Three months ago properly priced properties were selling in a fortnight, but now there are not enough buyers,” said Helena Hermanns of Leggett Immobilier. “It’s the quietest we have been for five years.”

While there has been an observed increase in interest from international buyers, this is not enough to fill the gap created by space-seeking Parisians leaving the city centre for the suburbs or other cities outside France.

“Strongest interest is from U.S. buyers, but we also have some from Asia Pacific and the U.K. looking to buy second homes in Paris,” said Yves Romestan, chief executive of YRSA Résidences par Progedim, an estate agency.

There are no restrictions on foreign ownership in France. Most property is freehold. Apartments are mostly held in two forms of freehold: co-ownership (which has meetings of co-owners, with votes taken and accounts kept), and volumes, adapted mostly for mixed-use developments. There are also leaseholds, for up to 99 years.

Residential construction activity falling

Recently, residential construction activity is showing signs of a slowdown. In the first eleven months of 2023, new dwellings authorized in France, excluding Mayotte, plunged by 27.3% to 297,609 units as compared to the same period last year, following y-o-y increases of 2.3% in 2022 and 20.4% in 2021, according to the INSEE.

Likewise, the number of new dwellings started in France, excluding Mayotte, fell sharply by 23.8% y-o-y to 223,048 units in Jan-Nov 2023, after a decline of 6.7% in 2022 and a growth of 10.5% in 2021.

France Residential Construction graph

During the peak of the housing market (2005-07), new dwellings authorized and dwellings started averaged 575,000 units and 483,000 units, respectively, every year.

Construction activity started to slow in 2008 due to the global financial crisis. In 2009, permits fell sharply to just 380,200 units and starts to only 345,500 units.

The sector gradually recovered since. From 2010 to 2022, new dwellings authorized averaged 455,150 units while dwellings started averaged 382,300 units over the same period.

France Number of Authorized Dwellings graph

Mortgage interest rates are rising, amidst successive ECB rate hikes

In December 2023, the European Central Bank (ECB) kept its repo rate unchanged at 4.50%, after ten consecutive rate hikes since June 2022 when the repo rate was at a record low of 0%, to curb the high inflation in the region.

As a result, mortgage interest rates are now rising. In October 2023, the average interest rates on new housing loans rose sharply to 3.42%, from 1.77% in the previous year and 1.13% two years ago.

By initial rate fixation (IRF):

  • Floating rate and IRF of up to 1 year: 3.64% in October 2023, up from 1.67% in October 2022 and 1.19% in October 2021
  • IRF of over 1 and up to 5 years: 3.64%, up from 1.77% in the previous year and 1.19% two years ago
  • IRF of over 5 and up to 10 years: 2.77%, up from 1.47% in the previous year and 0.85% two years earlier
  • IRF of over 10 years: 3.44%, up from 1.79% in the prior year and 1.14% two years ago