A housing market ‘running out of steam’ despite an upturn in the economy at large

Improvement in the global macroeconomic environment: encouraging signs?

The global macroeconomic environment has been improving since the beginning of the year. Economic activity in the US has stood up “relatively well” (+1.7%) along with growth in the eurozone (+1.3%) and China. We are seeing the “beginning of convergence in growth rates… between a US economy, where the signs of a downturn in activity are becoming increasingly tangible, a eurozone now on a path to recovery which still, however, needs consolidating, and a China seeking growth outside its borders that it cannot find at home.” Despite persistent inflation in the US (3.3%) and Europe (2.5% in June) in the services sector, a decline in inflation now seems to be taking hold.

A fragile economic climate in France

France began the year under similar conditions. However, despite the momentum generated by the Olympic & Paralympic Games Paris 2024, the worsening of the country’s public finances prompted a downgrade of its sovereign rating at the end of May and a warning from the European Commission in June about the excessive size of its deficit.

These announcements, the political uncertainty that gripped the country in June after the dissolution of the National Assembly following the European election results, and the international context clouded by acute geopolitical tensions will weigh down on the French economic environment.

Inflation at 2% by 2025: are central banks on the right track?

After the shock of the rise in key interest rates in 2023, the strict monetary policies pursued by central banks have proven effective in combating inflation. These policies aim to stabilize rates as long as doubts remain that the trajectory of 2% inflation (by 2025) has been secured. The encouraging inflation trend in the eurozone, however, allowed the European Central Bank (ECB) to decide to lower its key rates by 0.25 basis points in June while the US Federal Reserve backed away from this decision in the face of stubborn inflation in the United States.

Uncertainty in the real estate market: France faces a double challenge

In France, the decline in bank rates over the last three months automatically triggered a fall in the maximum allowable interest rate in June 2024. Although the Bank of France highlighted a rebound in real estate lending in April, monthly production remains at its lowest level since 2015, illustrating both the sluggishness of the real estate market and the inability of the credit market to support and stimulate activity.

After a series of major external shocks (waves of COVID infection, war in Ukraine, rising interest rates, persistently high inflation and an economic recovery that proved much more difficult than expected, etc.), political instability in France is adding further uncertainty to the real estate market, which is already considered risk-averse.

17% of French people believe that now is a good time to buy a home (June 2024).

Weak economic growth in France, the volatility of the social climate, the level of interest rates, and difficulties in accessing home loans were already depressing household morale and thwarting their real estate plans in recent months. While households remain undeniably keen on real estate, viewed as a bulwark of security against the uncertainty of life with its value as an asset and value in use, the residential market now appears to be running out of steam, a victim of the French people’s wait-and-see attitude and a lack of support from the public authorities.

An uncertain recovery in the face of budgetary challenges

The prospect of a short-term rebound seems unlikely, even though, in the current political context, the question of housing has suddenly regained prominence. A real revival of the sector through government support measures would require substantial budgetary expenditure – a course of action that appears to be limited, however, by the high level of public deficits in France.

18% of households have, or are developing, plans to acquire real estate in the next 12 months.

In any case, given the inertia of the real estate markets, the likelihood of a continued decline in activity in 2024 is increasing. A further weakening of prices remains crucial to restoring the purchasing power of households, who need to gain confidence in the future if new life is to be breathed into the real estate markets.