Is the real estate market really driven by lower rates ?!

In its last publication, on housing financing in 2018, the ACPR announces that "in a persistently low interest rate environment, the residential real estate market has been very dynamic in 2018: the number of transactions reached a new historical peak of 970,000 sales, well above the average of 788,000 observed since 2000, while the INSEE index of prices in the former rose by 3.2% in mainland France (+ 4.2% in Île-de-France and + 2.8% in the Province) ". A finding that is not surprising. It corresponds to what we hear and read everywhere, including for the first half of 2019: the real estate market is showing a strong dynamism and, with low interest rates, transactions beat records. But then, in these conditions, how to explain that in 2018, according to figures provided by the ACPR, the production of bank loans to housing … has fallen by more than a quarter (26%)!

If prices rise, driven by an increasing number of transactions, themselves boosted by excellent borrowing conditions, the volume of credit should also increase. But it's the opposite! The ACPR explains that "the annual production of home loans amounted to 203 billion euros in 2018, a figure still significantly higher than the average annual amount since 2003 (145 billion euros), although down compared to 2017 (-26%). This withdrawal is explained by the drop in external credit purchases (-67%), which went from 23.6% of the annual production in 2017 to 9.5% in 2018 and remain at this level in the first quarter of 2019. ". Things, in other words, are not at all as simple as we generally admit!

If we consider the following table, we can see a strong increase in the production of end-2014 credits in the summer of 2017:

Then, however, as we read in the ACPR publication, the demand for housing loans has fallen sharply. Rates, however, continued to fall.

In fact, if one looks closely at the numbers, the activity of banks in terms of home loans does not seem as dynamic as one might think. Credit buy-backs and renegotiations, rather than acquisition financing, accounted for 41.6% of total production in 2017. And the development of the market seems to be practically the work of a single player, Crédit Agricole:

All in all, if we talk about a strong dynamism of the real estate market, it is not really seen in the activities of banks which, for several years and whatever the profiles of acquisitions, the activity is in fact rather flat:

If one thinks in terms of borrowers, the finding is even more striking. There are fewer and fewer new entrants (purchases in the former are made by second-time buyers at 58% and by buyers belonging to the CSP + at 59%). We look at the level of rates but the prices are anyway become too high for many homes first-time buyers. So the low rate monetary policy fails to expand the market. According to the Household Credit Observatory, in 2012, 31.4% of households carried a mortgage, with an average rate of 3.9% (in the first quarter). However, in 2017, while the average rate in the first quarter had fallen to 1.46%, in proportion less households (30.8%) were carrying a mortgage.

Is the real estate market really driven by lower rates as well? In 2011, 1.436 million households took out a mortgage, compared to 1.285 in 2017. At the same time, however, the average rates applicable to mortgages were divided by more than 2! Apparently, the market is changing less and less and is driven by specific segments, such as luxury real estate, whose transactions jumped by 34% in 2018. In any case, the elasticity of demand to the evolution Rates do not appear automatic.

Therefore, how to explain the overall rise in transactions? This rise is indisputable, even if it calls apparently some reserves, to read the last Letter of conjuncture of the Notaries of France: "With 1,020,000 transactions made over twelve months at the end of July 2019 (+ 7% over one year), the annual volume of transactions con fi rms the exceptional dynamism of the real estate market, which is higher than that accumulated over one year in the previous quarter (984,000 end of March), as well as a year earlier (953,000) However, as long as this historical record is a benchmark in the years to come, the proportion of sales remains today equivalent to that of in the early 2000s, if it is related to the stock of available housing which increases by about 1% per year ". Notaries speak of a demand that continues to grow and a steady increase in the number of buyers. But no borrowers?

Here and there, we find some scattered information that allows us to consider that real estate acquisition, henceforth, is financed less on credit. This is due to the fact that more and more buyers (17% of acquirers are over 50, compared to 11% five years ago) are seeking less financing (13.9% of buyers today are pensioners, who finance on credit only 65.2% of their real estate investments, compared to 78% for the entire population). But, on the other hand, the duration of bank loans, like the low level of personal contributions, reach historical levels.

In short we have no explanation. But not having found an answer surprises us less than having seen the question asked anywhere else!