These indicators with the effect of a delay of 6 months…
The real estate market is a furry, advancing at a snail’s pace. The set of indicators and data on the real estate market, published by a number of media outlets, is always from a previous situation, sometimes more than 3 months! Thus, in the second quarter of 2022, the average interest rate on home loans rose to 1.40%, according to Observatoire Crédit Logement/CSA. But these are loans granted, the files were kept early. In fact, the rates shown are currently around 1.8% excluding insurance. This difference is explained by the delayed effect of these indicators based on the projects started at the beginning of the year! This rise in loan rates has accelerated since the beginning of the year, while conditions for obtaining mortgages have become more stringent. This is by no means surprising, as recent information shows that the mortgage market has only collapsed for a few weeks.
Much higher interest rates…
It’s simple, mortgage rates have more than doubled in 6 months. Now the rate of increase in mortgage rates is around +10% per month. Thus, for the month of August, the broker CAFPI assures an average price increase of about 16 basis points. With assurance, the mortgage rate for a “good” file (that is, a worst-file loan will be denied anyway), well above 2%, to a minimum settlement of 2.30%. Nothing exciting yet, but the rally will continue… and that should lead to a frightening blockage in the market.
Intake Explosion Request
In order to get a loan, banks no longer hesitate to ask for a large contribution. We crossed the 20% mark, we got to 25%. So yes, some wealthy borrowers can borrow without a contribution using a pledge of their assets, or pay a high rate by opting for a penalty loan. Such solutions are suitable only for borrowers who do not really need to borrow for the purchase, for others it will be necessary to be patient and wait for real estate prices to fall.
Credit applications collapse
All credit indicators are in red: Rates continue to rise rapidly and the volume of loans granted is down (-12.5% in the second quarter YoY), according to the latest figures from Crédit Logement. The latter also expects a 15% drop in 2022 in credit production (accepted offers). CAFPI notes a gradual freeze of mortgage loans. Since the beginning of the month, 1 out of 2 coils are experiencing difficulties due to the wear rate! This is 2.57% for loans of 20 years or more, but it must be remembered that it includes the costs of obtaining collateral, administrative costs and the cost of borrowing insurance.
The cost of credit risk is rising sharply
Details don’t deceive, banks are reviewing the cost of credit default risk on the rise. Having reduced their provisions in the wake of the Covid crisis, the latest publications of banks’ quarterly results show that banks have doubled their estimates in the face of financial risks of tougher economic conditions. Thus, Crédit Mutuel Alliance Fédéral, a major player in the distribution of mortgage loans, in 2.6 doubled its provisions for defaults by its clients in the first half of 2022.
Expected decrease in real estate prices between 10% and 15%
What some specialists expect is a significant reduction in prices of about 10 to 15%. The market reversal should begin at the beginning of the following school year. But, for now, nothing helps! The price drop is hardly noticeable. Even in Paris, the price per square meter, according to the authoritative ParisSQM index, published by Compass, indicates a slight recovery in July.
This is an extra thorn in the side for future buyers. The increase in property taxes becomes a real component of the choice for home acquisition. In some municipalities, this property tax significantly exceeds the amount of rent. For credit buyers (80% of owners), property tax exceeds the amount of the monthly premium on their credit. This property tax made headlines at the start of the school year…