Source: French to English Tester Published on: 2026-05-08
Source: The Conversation – France (in French)– By Jérémie Bertrand, Professor of Finance, IESEG School of Management and LEM-CNRS 9221, IESEG School of Management, IESEG School of Management
The brutal rise in interest rates makes some experts fear a real estate crash. However, the conditions are far from being met. What we observe is rather a market on pause, where buyers and sellers delay their plans. This is not necessarily good news for households looking for accommodation. For the economy, it is less serious. For the moment.
For two years, the French real estate market has been going through a rarely seen turbulence zone since the early 2000s. A sharp rise in interest rates, a drop in real estate purchasing power, sluggish transactions: these are all signals that fuel a question that has become recurrent among households as well as investors: should we expect a crash in mortgage lending?
Behind the anxiety-inducing speeches, what are the economic mechanisms really 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 the graph below shows, in the 2000s, borrowing at 4 or 5% was the norm.
Coin Capital and Banque de France (authors’ calculations),Provided by the author
What changes today, and what we observe on the graph, is the speed of the increase. It caught both households and banks off guard. Result: the rapid rise in rates caused an accelerated contraction in credit demand. Many households no longer pass thefilterof the debt ratio, or simply give up on going into debt to buy.
A credit market under pressure
The volume of mortgage loans granted 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 feeds the idea of a “credit crash.” However, a crash, in the strict sense, implies a sudden and disorderly collapse of the system. Yet, what we observe today looks more like a forced adjustment than a systemic break.
French banks remain solid, well capitalized, and have little exposure to risky loans of the type“subprime»as was the case in the United States in 2008.
Improvement in large cities
Faced with the decline in demand, real estate prices have started to correct in many major cities since 2023. Paris, Lyon, or Bordeaux have recordedprice decreasessignificant, 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 resume, prices must align, it’s the law of supply and demand. But again, we are talking about a gradual correction, not a generalized collapse.
However, severalstructural factorscome to limit the fall in prices. 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 available housing units to meet the needs of households, which mechanically supports prices, even during a period of slowdown. Moreover, many owners hesitate to resell their property at a price lower than the one at which they bought it, in order toto 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 significantly lower their prices while buyers lose their borrowing capacity. The result is less of a crash than a progressive paralysis of the market.
Increased housing needs for demographic reasons
At the same time, the demographic dynamics continue to drive demand. The French population is growing, aging, and changing its lifestyles (separation, single-parent families, professional mobility). All these changes 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 a loan to repay: their debt ratio is approximately11%, compared to nearly 28% for first-time buyers. This more comfortable financial situation limits forced sales during periods of slowdown.
Overall, these elements create a form of inertia in the French real estate market: prices may fall, but they are more resistant to shocks 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 sharp slowdown in activity. In a context of high interest rates, buyers and sellers adopt waiting strategies. The former hope for a rate decrease to improve their borrowing capacity; the latter prefer to defer the sale in the hope of preserving their price. This mismatch blocks negotiations and significantly reduces the number of transactions. The market does not collapse, therefore: it seizes up. Exchanges become scarce, residential mobility slows down, and overall it gives the impression of a “stalled” 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 recedes. In France, the authorities have already adjusted certain parameters to avoid a market freeze. The calculation of the usury rate, the maximum legal rate for lending, has thus been temporarily monthly calculated in2023in order to better monitor the rapid rise in rates and to facilitate the granting of credits.
At the same time, banks haveflexibility marginson debt rules, with controlled exemptions that allow certain cases to be approved beyond the standard criteria. The objective is clear: to maintain minimal access to credit despite the tightening of conditions. These interventions help to cushion shocks. They make a pure crash scenario less likely, even if 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 selection of borrowers, 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, notably on the construction sector.
The euphoric period of the real estate sector is over. We have entered a more demanding environment where credit once again becomes a scarce and expensive 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, do not advise, do not hold shares in, do not receive funds from an organization that could benefit from this article, and have declared no other affiliation 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