Economy: Why does real estate in Île-de-France continue to fall?

The Paris region's real estate market is faltering and the figures keep coming in relentlessly. This sector, once a solid pillar of the regional economy, is now caught in an unprecedented downward spiral, where transactions are collapsing and prices are continuing their vertiginous fall. The walls of the capital and its surroundings, once synonymous with stability, are cracking under the combined effect of soaring interest rates, economic uncertainty and buyer reluctance. In this tense climate, where the cards are being redistributed, buyers are regaining control while sellers are trying as best they can to adapt.

An inexorable collapse of real estate prices in Île-de-France

The French real estate market is going through an unprecedented crisis, characterized by a generalized devaluation of properties and a collapse in transactions. In Île-de-France, the prices of old apartments plunged by 6.7% over one year in the second quarter of 2024, according to the latest data from the notaries of Greater Paris. In Paris, the square meter is now trading at around 9,450 euros, a significant drop compared to the 10,860 euros recorded in 2020. This fall is not limited to the capital: the inner suburbs are seeing an even sharper drop, with a fall of 7.4%, while the outer suburbs are holding up a little better with a decline of 5.5%. Far from being purely cyclical, the phenomenon reflects a market where access to credit has become more difficult and where households are struggling to obtain financing due to the rapid rise in interest rates.

Houses are not left out. In the inner suburbs, prices have fallen by 8.5% over the last twelve months, a plunge that underlines the depth of the crisis. Hauts-de-Seine remains the most expensive department with an average price of 646,400 euros for a house, while Seine-Saint-Denis displays prices half as low. The outer suburbs, for their part, have recorded a more moderate but continuing drop in house prices, trading on average at 300,900 euros. These figures reflect a sluggish real estate market, where demand has collapsed and transactions have fallen by 19% in one year. The slowdown in activity puts buyers in a strong position, offering them the opportunity to negotiate significant discounts. But this situation only serves to exacerbate the tension in a market already weakened by inflation and economic uncertainty, raising serious questions about the ability of the Paris region real estate market to regain its former dynamism.

A lasting crisis and profound repercussions

Beyond the raw figures, the real estate crisis in Île-de-France reveals a deeper malaise, rooted in unbalanced market dynamics and uncertain economic prospects. Sales continue to collapse, with a drop of 18% over one year and 38% in just two years for existing homes. This decline spares no category, with houses suffering an even more severe decline, with a fall of 44% since 2022. Notaries in Greater Paris speak of a “sluggish” market, hit by historically low volumes, reminiscent of the dark hours of the subprime crisis. The causes are multiple: the rise in interest rates, which is weighing on household purchasing power, and the reluctance of banks to grant credit, which is depriving the market of new entrants. In this gloomy climate, sellers forced to sell their property often have to accept significant discounts, while buyers remain in a waiting position, watching for a possible stabilisation of prices.

While real estate prices continue to fall, the pace of this decline has slowed slightly and is offering some tentative signs of calm. Notaries note that the contraction in prices, although still present, is tending to moderate compared to previous quarters. However, this lull is not synonymous with recovery. Household solvency remains weakened by high financing costs and persistent inflation, limiting any significant improvement in activity. The outlook for the coming months remains mixed: on the one hand, a possible drop in rates could support a tentative recovery in transactions; on the other, economic and political uncertainties continue to weigh heavily on the morale of investors and households. In addition, the adjustments needed to rebalance the market seem far from being achieved, casting doubt on the true capacity of real estate in the Paris region to rebound.

The real estate market in Île-de-France is at a critical turning point, caught between a drop in prices that seems to be running out of steam and an activity that is struggling to catch its breath. While signs of stabilization are appearing, they are not yet enough to reverse the underlying trend of a sector in search of benchmarks. The current crisis will not be resolved by simple price adjustments; it will require a complete redefinition of the conditions for access to credit, a restoration of confidence and a more predictable economic environment.