Mortgages: What if a drop in interest rates limited the decline in prices to 10%?

Pretto, a 100% digital mortgage broker, presents its analysis of the 2023 real estate market and the outlook for 2024, as well as the implications for borrowers.

The end of last year set in motion a trend that is continuing into early 2024. All the banks have expressed their willingness to resume mortgage lending in this context.
 

2023 Review: A Sharp Market Decline, with No Major Action from the Government

The year was marked by a notable slowdown in the real estate market, as evidenced by a decline in transaction volume (-20%) and an even sharper drop in new lending (-40%), a discrepancy that can be explained in part by the increase in down payments and the number of cash transactions (100,000 more cash transactions compared to 2022).

In response to this decline, the measures taken by the government over the course of the year were primarily technical in nature (conversion of the usury rate to a monthly basis, adjustments to the HCSF criteria), which did not address the difficulties faced by prospective homebuyers.
 

Forecast: A real decline in prices in 2024, but limited to a maximum of 10% over the 2022–2024 period

The macroeconomic environment (easing inflation, expectations of lower key interest rates) points to a decline in mortgage rates, which could reach 1 to 1.5 percentage points by the end of 2024, and which is already beginning to be seen at major banks.

Based on an analysis of trends in purchasing budgets, this decline could quickly put an end to the downward trend in prices that has begun:

Since the start of the rate-hike cycle in mid-2022, borrowers have lost 30% of their borrowing capacity, which has triggered a downward cycle in prices.

However, several factors are currently offsetting this loss: a wage increase of nearly 5% per year in 2022 and 2023; and a potential rate cut of 1 to 1.5 percentage points by the end of 2024.

As a result, the gap between these upwardly revised procurement budgets and prices would be only 10 to 13 percent, limiting the potential price decline over a two-year period (from late 2022 to late 2024) to that extent.

This decline could be even smaller in certain tight housing markets, where a significant portion of buyers might supplement their loan budget with additional down payments—either directly or through family support—a trend that was already widely observed in 2023.

This price decline has so far been only partially realized (-2% in 2023): opportunities to negotiate lower prices will therefore be particularly relevant in 2024, as we are seeing on a daily basis at the start of this year, with offers being accepted at up to 10% below the asking price.

Once this price decline has taken effect, the market will be able to resume its volume growth trend, with transactions expected to remain below 900,000 in 2024.