Source: French to English Tester Published on: 2026-05-08
Source: The Conversation – France (in French)– By Jérémie Bertrand, Finance Professor, IESEG School of Management and LEM-CNRS 9221, IESEG School of Management, IESEG School of Management
The brutal rise in interest rates has some experts fearing a real estate crash. However, the conditions are far from being met. What we are observing is rather a market on hold, where buyers and sellers are delaying their projects. This is not necessarily good news for households looking for housing. For the economy, it is less serious. For now.
For two years, the French real estate market has been going through a period of turbulence rarely seen since the early 2000s. A sharp increase in interest rates, a drop in real estate purchasing power, a decline in transactions: all signals that fuel a question increasingly common among households and investors alike: should we expect a real estate credit crash?
Behind the alarming speeches, what are the real economic mechanisms at work? Between 2021 and 2024, mortgage rates rose from about 1% to over 4%. This shock can be perceived as severe, especially after a decade of “almost free” money. However, as shown in the graph below, in the 2000s, borrowing at 4 or 5% was the norm.
Coin Capital and Banque de France (authors’ calculations),Provided by the author
What is changing today, and what we observe in the graph, is the speed of the increase. It has taken both households and banks by surprise. Result: the rapid rise in rates has caused an accelerated contraction in credit demand. Many households no longer go through thefilterof the debt ratio, or simply give up borrowing to buy.
A credit market under strain
The volume of granted mortgage loans has dropped sharply since2022. Banks, constrained by prudential rules (debt ratio at 35%, maximum duration of 25 years), have tightened access to financing. They lend less and select applications more rigorously.
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Since the 2008 crisis, the financialization of the real estate market has accelerated
This phenomenon fuels the idea of a “credit crash.” However, a crash, in the strict sense, implies a sudden and disorderly collapse of the system. What we observe today, however, resembles more a forced adjustment than a systemic break.
French banks remain solid, well-capitalized, and have little exposure to risky loans of this type“subprime»as was the case in the United States in 2008.
Correction in large cities
Faced with declining demand, real estate prices have started to correct in many major cities since 2023. Paris, Lyon, or Bordeaux have recordedprice reductionssignificant, often ranging between 5% and 10% depending on the periods and markets.
This adjustment is logical:when credit becomes more expensive, purchasing power decreases. For transactions to restart, prices must align; it is the law of supply and demand. But here again, we are talking about a gradual correction, not a generalized collapse.
However, severalstructural factorscome to limit the price decline. First, the imbalance between supply and demand remains significant. In France, the housing market has been characterized for several years by a form of shortage, particularly in large metropolitan areas. As explained by the national association for housing information(ANIL), there are simply not enough homes available to meet household needs, which mechanically supports prices, even during a slowdown. In addition, many owners hesitate to resell their property at a price lower than what they paid for it, in orderto avoid materializing a financial loss.
The French real estate market is not experiencing a smooth adjustment through prices, but a blocked adjustment: sellers refuse to sharply lower their prices while buyers lose their borrowing capacity. The result is less a crash than a progressive paralysis of the market.
Increased housing needs for demographic reasons
Simultaneously, the demographic dynamics continue to drive demand. The French population is increasing, aging, and evolving in its lifestyles (separation, single-parent families, professional mobility). All these developments increase the need for housing, adding an additional obstacle to the expected adjustment.
Finally, the ownership structure plays a stabilizing role. A significant portion of owners in France no longer have any loans to repay: their debt ratio is approximately11%, compared to nearly 28% for buyers. This more comfortable financial situation limits forced sales during a slowdown period.
Overall, these elements create a form of inertia in the French real estate market: prices can fall, but they resist shocks better than in more speculative or more indebted markets. In other words, we do not observe massive forced sales likely to cause a sharp drop in prices that would constitute the “normal” adjustment mechanism.
On the other hand, this resistance is accompanied by another phenomenon: a strong slowdown in activity. In a context of high interest rates, buyers and sellers adopt waiting strategies. Buyers hope for a drop in rates to improve their borrowing capacity; sellers prefer to delay the sale in the hope of preserving their price. This mismatch blocks negotiations and significantly reduces the number of transactions. The market therefore does not collapse: it stalls. Exchanges become scarce, residential mobility slows down, and overall it gives the impression of a “standstill” market.
The stabilizing role of European and national authorities
Moreover, the authorities play a central role in the evolution of the market. The European Central Bank has already slowed the rise in rates and could stabilize them, or even gradually lower them if inflation decreases. In France, the authorities have already adjusted certain parameters to avoid a market freeze. The calculation of the usury rate, the maximum legal lending rate, has thus been temporarily monthly adjusted in2023in order to better monitor the rapid rise in rates and to facilitate the granting of loans.
At the same time, banks haveflexibility marginson debt rules, with controlled exemptions that allow the approval of certain files beyond standard criteria. The goal is clear: to maintain minimal access to credit despite the tightening of conditions. These interventions help to soften shocks. They make a pure crash scenario less likely, even though they cannot prevent a lasting slowdown.
This is not a crash, just a malfunction
Rather than a crash, we are witnessing the end of an exceptionally favorable cycle. The real estate market is entering a more “normal” phase, marked by higher rates than in the past decade, increased borrower selection, and a stabilization, or even a moderate decline, in prices. This implies a change in behavior. Buyers must revise their expectations, sellers adjust their prices, and investors recalculate their returns.
For households, the situation is uncomfortable but not catastrophic. Those who have already borrowed at a fixed rate are protected. Those who wish to buy must be more patient and more strategic.
The real risk is not a sudden crash, but a market that is persistently stuck, with fewer transactions and reduced residential mobility. This can have broader economic effects, particularly on the construction sector.
The euphoria period in the real estate sector is over. We have entered a more demanding environment, where credit is once again a scarce and costly resource. For market players, the challenge is no longer to take advantage of an upward cycle, but to adapt to a new reality.
The authors do not work for, advise, hold shares in, or receive funds from any organization that could benefit from this article, and have declared no affiliation other than their research institution.
–ref. Mortgage credit: the reasons for a blockage in the housing market –https://theconversation.com/credit-immobilier-les-raisons-dun-blocage-du-marche-du-logement-281774