Inflation and credit rates: real estate faces headwinds

Inflation and credit rates: real estate faces headwinds

How far will the slowdown go? In the face of a series of headwinds, “The real estate market remains dynamic, but it is lower than it was in 2021 in terms of volumes and prices”with underlined on Wednesday 15 June with family folder Thomas Lefebvre, Scientific Director of real estate appraisal brand MeilleursAgents.

Inflation reduces purchasing power, especially for those who want to buy real estate and finance their purchase with a loan. The National Institute of Statistics and Economic Studies (Insee) published a survey on Wednesday estimating a 0.7% increase in consumer prices last month and a 5.2% increase over a one-year period in those prices.

“Families find themselves with a very low budget before borrowing, Explained the day before family folder Henri Buzy-Cassaaux, President of the Institute of Real Estate Services Management (Imsi), referring to ” High prices for fuel, energy or food.

Consequences of the war in Ukraine

The war in Ukraine, provoked by Russia’s attack on February 24, has not only increased pre-existing inflation, but also increased pessimism in minds already tested through two years of health crisis due to the COVID-19 pandemic. .

From its early days, the struggle affected the morale of the French, Henri Bouzy Cazaux notes. Fear of extension or exacerbation due to the risk of resorting to nuclear weapons, does not align with the life plan of 15, 20 or 25 years. Real estate agents do not always say this – in the sector it is difficult to accept a decrease in activity – but some people abandon their project. »

deterioration of access to credit

In addition to the return of war in Europe, there is a deterioration in access to credit. Banks, which have been required since Jan. 1 to honor commitments drawn up by the High Council for Financial Stability (HCSF) that until then had been just simple recommendations, are sorting files with increasing rigor. For some families, the required personal contribution level may be 40% rather than 20% from six months or a year ago. For first-time or second-time buyers whose income is about three times the minimum wage [salaire minimum interprofessionnel de croissance] and half, rates can exceed 2%”notes Henry Buzy-Cazaux.

“On average, 20-year rates provided by Empruntis Partners reached 1.55% in June, compared to 1% in January.”indicates Wednesday at family folder Cecile Rockellor, Director of Studies for this mediation network. Lenders pass the increase in yield on absorbable treasury bonds (OAT), the securities that a country issues in the financial markets to finance its debt. OAT return over 10 years “It was still in negative territory in December 2021, and it is now above 2%.”Cecile Rockellor notes.

Low wear rates

1.55% rate is ” Very well “Empruntis partners already offered it in the first quarter of 2019, according to our interviewer. “But back then, the 20-year loan attrition rate was 2.83%, compared to 2.4% today.”Adds director of mediation network studies. To reduce the risk of over-indebtedness, banks cannot exceed usury rates, which, as calculated by the Banque de France, represent a third more than the average rates practiced in the previous quarter. The usury rates in effect from July 1, will necessarily increase, but their evolution will not quite match the increase in the cost of credit, predicts Cecile Rockellor, who believes that the institution relies primarily on the borrowing rates it practiced at the beginning of the quarter to determine depreciation rates.

The weakness of the latter is likely to disqualify applicants whose profiles are considered risky or not profitable enough. “A bank that is afraid of losing money may prefer saving rather than lending.” For these people, Cecil Roquelure analyzed.

The end of the era of low interest rates

In order to fight inflation hitting the eurozone, the European Central Bank (ECB) plans to raise key interest rates in July and then in September, the institution announced on June 9. The announcement that banks have been waiting for confirms the end of the era of low interest rates. We are at the end of the cheap money cycle.confirms Thomas Lefevre. “The price level is explained by low interest rates. If credit rates rise to 3%, the purchasing power of real estate is likely to decrease by 20%”calculated by the scientific director of Agents Meilleurs.

“In 2011, loan production was divided by 2.5” Thomas Lefebvre remembers this because the credit tap ran dry, whose rates were around 4%. According to him, the upward trend “affect the most expensive markets, the markets of the big cities”.

Henry Buzy-Cazaux does not expect a file ‘price collapse’Note that “Prices in Paris fluctuate” And the “He should calm down in medium-sized cities”After it increased sharply in these municipalities. “Local customers generally cannot buy at the asking prices, as residents of large cities take up the bulk of the supply”, confirms our interlocutor. For him, price correction is necessary.

Prohibition of renting power refineries and rental jump brakes

Inflation and rising borrowing rates affect people who plan to buy real estate to live in, as well as those who plan to rent it. Additionally, investment candidates are penalized by new environmental requirements. For example, as of January 1, 2023, it is not possible to rent accommodations that are thermal sieves, that is, those with an energy consumption of less than 450 kWh per square meter in the French capital. The ban will apply to contracts concluded on that date. Such a measure, which affects most of the old housing stock, can force the owners to finance the work. Additionally, as Henry Buzy-Cazaux points out, condominiums take on or will decide on work to ensure buildings meet requirements. Many apartment owners should expect an increase in their condominium fees.

Landlords may worry that there may be brakes on the jump in rentals. The Elizabeth Bourne government is studying various ways to respond to the automatic increase in the Reference Index for Rents (IRL), which landlords generally use to calculate the amount of annual change. Percy, in agreement with the National Real Estate Association (Fnaim), does not advocate a temporary freeze on rents required by consumer associations. The prime minister, Elizabeth Bourne, expressed reservations about such a measure, in an interview published on May 21 Sunday newspaper. The Ministries of Economy and Environmental Transformation are studying solutions. The Prime Minister must conduct an arbitration in this matter.

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