Your own intelligence answers the question everybody is asking.
Are you unsure about where real estate values are heading in Paris? Wondering whether you should invest now or later? Here’s the quick answer: expect today’s prices in Paris to drop by 9% by the end of 2024. And when's the best time to buy? On the downward slide.
Woosh!
Well now, that’s some claim! What kind of credibility do I have to make it?
Let’s be honest: you are happy to have an answer, even though you doubt its credibility. I have no expert credentials to make it, but neither did I pull it out of a hat. So allow me at least the chance to expound.
What better place to find the answer these days than with ChatGPT? How then, does the popularized artificial intelligence forecast the market? You can try it yourself and discover that ChatGPT admits to its incompetency in such matters. Not only that, its latest data (as of Sept 2023) is from 2021. In a nutshell, artificial intelligence will advise you to revert to natural intelligence. “Ask the experts,” so it says, even suggesting “real estate agents”. Seriously?
So if ChatGPT says I have a response, then I must have one! I did also ask “the experts”, keeping in mind that all of them (real estate agents, notaires, banks, politicians) have their particular biases. They observe the situation from the prism of their orthodoxy, and may also have a vested interest in a given scenario.
Of all the factors determining the price trend, collective anticipation may be the most significant. For almost a year now, the media have been pounding this message: Paris real estate prices are dropping! It’s a self-fulfilling prophecy, just as effective as some central authority dictating the drop.
A year later, now that a 4.4% price drop in Paris has become a statistic, there is ongoing speculation about how far it will go and how long it will last. With the passing months, the “experts” are emboldened in their dire forecasts, some expecting the market to bottom out after a 30% drop.
Let’s have a go at this. To hell with the experts and ChatGPT. How about you decide? To assist in your decision, I’m going to lay out the factors that portend a significant drop, and also those factors that favor a rise. Then we’ll weigh them and see where the ball rolls.
Here are the major factors that are pushing prices down:
Average French incomes are increasingly disconnected from real estate prices. Fewer and fewer French buyers can afford to purchase housing. This has been the case for over a decade, but “free borrowed money” has kept the system running. Real interest rates were negative over a long period, inflating the bubble to its limits.
Interest rates have now quadrupled over the past couple of years, and may be stabilizing around 5%. The pool of potential buyers at current prices has shrunk considerably. It’s not that a 5% interest rate is particularly high (by historical comparison), it’s that the revenue growth is not there to support the purchasing power.
The number of transactions has declined by nearly 30% compared to 2022. Taking into account that 2022 was an exceptionally good year for transactions, let's adjust that to a 15% drop over the running average of the past five years. The fact remains that inventory is building up as Sellers refuse to accept the new reality. Over the months ahead, some of these will be obligated to drop their prices if they want to sell. The drop in the number of transactions is a lead indicator for the drop in prices, even though the relationship cannot be expressed mathematically due to the number of variables.
There are hardly any fiscal incentives to purchase, such as the deduction of interest payments from income taxes.
There are two wars underway (others brewing) with major implications for the entire world. It is not unreasonable to expect lower levels of buyer exuberance.
Energy efficiency requirements. The government has been progressively tightening these requirements, pushing owners to invest massively in upgrades. The upshot of this is that energy-efficient properties will maintain (or improve) their market value, whereas inefficient properties will quickly lose value. The worst in class (rated F or G on a scale of A to G) may no longer be sellable or rentable at all. The amount of the loss will be directly correlated to the costs of required upgrades which will increase alongside general inflation. Given that real estate market statistics make no distinctions as to the quality of properties being sold, it would make sense that prices will decrease on the whole, given that the majority of properties on the market do not have excellent energy ratings. At the same time, those properties with excellent ratings will see their prices increase.
Last, but perhaps first, the downward price trend has become a collective belief, a common market sentiment. When all the market actors align themselves behind a certain expectation, that expectation becomes manifest.
And here are a few factors that may mitigate the downward trend.
The inextinguishable attractiveness of Paris, compared to many other even more price-inflated international cities
The 2024 Olympic Games. The greater Paris area is undergoing a massive infrastructure upgrade that should, all other things being equal, boost prices in years to come, especially in those areas most affected such as Saint-Denis. The Games will serve to increase the visibility and attractiveness of Paris for several years.
The supply of properties in Paris remains limited. There won’t be any tall buildings to increase that supply (the law now restricts building height to 37 meters), the boundaries of central Paris will not expand, and its monuments won’t grow legs and walk away.
The French cultural preference for la pierre (investment in stone). It is no surprise that the French feel reassured by such investments, given how their country’s physiognomy is so characterized by centuries-old stone buildings. Yes, the stones will likely remain when the legal tender flames. There is a truth that, regardless of whatever monetary value a building may hold at a given time, it always has its value of use. A house is a potential home, and there are few material things worth more to people than a home.
Now then, let’s put all this into the blender using proper proportions, and what comes out should match my opening prognostic! In the sea of speculation that surrounds us, I don’t suppose I should have any qualms about voicing my own.
Here is my concluding advice. Life is short…and sometimes far shorter than expected. If you have a well-anchored dream to live in Paris (or elsewhere in France) and have the financial means to purchase property, take advantage of the downward slope. You might not time the market bottom just right, but on the downward price slope, you’ll have good bargaining power and more time to act.