Can lowering key rates revive the real estate market?

It now seems certain that the American Central Bank (Fed) will announce its first cut in key interest rates since 2020 on Wednesday at midday, which will encourage some borrowers to embark on real estate projects.

This is a first in four years. In the United States, the Fed, the American central bank, must decide, on Wednesday, September 18, to lower its rates. The European Central Bank, for its part, made the same move last week. Enough to revive the real estate market.

A drop in rates gives the economy a boost. In concrete terms, households and businesses can borrow more cheaply. This is an incentive to make plans, to invest, and borrowers who did not have sufficient means are thus encouraged to return to the market.

The real estate market has been somewhat sluggish in recent months. Households, when they could, postponed their desire to move, expand, and buy as much as possible. Sellers, for their part, did not want to lower prices. Everyone was waiting. After “gloomy” months, transactions are slowly picking up again, driven by this drop in rates. We have gone from over 4% to 3.8% on average over 20 years. If the ECB continues its monetary easing policy and makes a further reduction by the end of 2024, we could even see rates of 3% over 20 years at the end of 2024 for the best files. In this context, in addition, banks are trying to attract customers back. They are showing themselves to be more flexible, and the number of loans is starting to rise again.

The construction sector, for its part, continues to suffer. The delay is significant. According to the French Building Federation, the number of construction starts has fallen by more than 20% cumulatively in 2024. The number of permits granted has fallen by 12%, which leads professionals in the sector to say that with barely 260,000 homes built this year, we are at a level close to that of the 1950s! Suffice to say that tensions on the real estate market are not going to be resolved immediately. For this reason, professionals are expecting a little help from the future government, by playing on taxation. They are calling for the reinstatement of the PTZ, the universal zero-rate loan, or a reduced-rate loan on the same principle, with long repayment deferrals, or even the maintenance of the Pinel system to encourage rental investments.

Not sure, however, that their wishes will be granted given the budget deficit. We are waiting for the 2025 budget project, but rather than creating or maintaining tax loopholes, the future government seems rather inclined to increase taxes.