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Money Matters and Legal / Your Money

Low interest rates mean its time to buy, according to Meilleursagents

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The French real estate sector’s recovery is chiefly due to historically low interest rates paired with steady prices, Meilleursagents’ latest barometer reports. Nonetheless, the market’s durable recovery has yet to be confirmed.

The 80th edition of Meilleursagents’ monthly barometer on residential property prices across France links the market’s growing recovery to interest rates on loans being at an all time low.

According to Meilleursagents’ CEO, Sébastien de Lafond, “credit rates are so low they could wake the dead… But the real estate market is already recovering, so no wonder it has come alive!”

These historically low interest rates, which have dipped from 4.3% in 2011 to just 2.15% today, boost the purchasing power of creditworthy households by 21%. Households with very good credit scores are even able to negotiate rates lower than 2% on their loans.

Added to lower prices — with property in Paris 11% cheaper than in July 2011 — this amounts to a 32% increase in purchasing power in just five years.

Unfortunately, there is still an imbalance between a large property supply and demand. Meilleursagents Real Estate Tension Indicator (ITI) remains low in Paris, at 1.3 buyers per property, against 4.4 buyers to a home in 2011. The situation is even worse in the inner and outer suburbs with an ITI of 0.8 and 0.5 respectively.

Similarly in Bordeaux, Strasbourg, Lille and Marseille, there are between 1.3 and 0.7 buyers per property on the market. It would take at least two prospecting buyers per property for the market to fully recover, according to Meilleursagents.

They do not expect prices to climb dramatically in coming months, as they might were the market truly strong. They also envisage two possible scenarios for the real estate market’s evolution in coming quarters: on the one hand interest rates could rise, either due to a recovery or a financial incident.

If an economic recovery occurred, lower rates of unemployment would increase demand for property and prices would stabilize. If a financial incident were to occur, the value of all assets would be revised downward. Either way, real estate should not suffer a deeper decrease in value than other types of assets, and would therefore remain a relatively safe bet. In both cases, Meilleursagents explains, now is a good time to buy or sell property.

A more likely scenario would see interest rates remain low, perhaps even decreasing slightly, thus further increasing households’ purchasing power.

The report warns that this recovery does not mean that buyers can anticipate rapid capital gains nor that sellers should expect everything to be quickly bought up. Many ground floor and first floor apartments, large surfaces and outlying homes are still struggling to find buyers, whereas in periods of real recovery — such as in 2010-2011 — all properties sold.

According to Meilleursagents, it’s time to buy property, but without banking on high capital gains in the short-term. While the recovery is not yet complete, transactions are more plentiful and prices are rising steadily in the capital, its inner suburbs and in many major cities across the country.

In Paris, residential property prices have increased by 0.2% over March 2016 and 0.9% since the beginning of the year. In the inner suburbs, prices rose by 0.3% on average in March and 0.6% since January.

Across France, Bordeaux experienced the most significant price hike in March (+0.6%) while Nantes, which saw its prices grow by 0.2% over March, experienced a price increase of 1.6% since the start of the year.

Conversely, Strasbourg and Nice have suffered the largest price declines over March, of 0.8% and 0.9% respectively.

Photo credit: Wikimedia / Jorge Royan

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