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 is causing some experts to fear a real estate crash. However, the conditions are far from being met. What we are observing is rather a market on pause, where buyers and sellers are delaying their plans. 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 rise in interest rates, a drop in real estate purchasing power, sluggish transactions: all these signals fuel a recurring question among households as well as investors: should we expect a real estate credit crash?
Behind the alarming speeches, what are the economic mechanisms really at work? Between 2021 and 2024, mortgage rates went from about 1% to over 4%. This shock can be seen 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 changes today, and what we observe on the graph, is the speed of the rise. It caught both households and banks off guard. Result: the rapid increase in rates caused an accelerated contraction in credit demand. Many households no longer go through thefilterof the debt ratio, or simply give up on borrowing to buy.
A credit market under tension
The volume of mortgage loans granted has plummeted 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 crunch.” However, a crunch, in the strict sense, implies a sudden and disorderly collapse of the system. What we observe today, however, 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.
Correction in large cities
Faced with the decline in demand, real estate prices have begun a correction 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 pick up again, prices must adjust; this is the law of supply and demand. But again, we are talking about a gradual correction, not a widespread collapse.
However, severalstructural factorscome to limit the price decrease. 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, especially in large metropolitan areas. As explained by the national association for housing information(ANIL), there simply are not enough available housing units to meet the needs of households, which mechanically supports prices, even during a slowdown. Moreover, many owners hesitate to resell their property at a price lower than what they bought it for, 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 and more of a progressive paralysis of the market.
Increased housing needs for demographic reasons
Simultaneously, the demographic dynamics continue to drive demand. The French population is growing, aging, and evolving in its lifestyles (separation of households, 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 loans to repay: their debt ratio is approximately11%, compared to nearly 28% for first-time buyers. This more comfortable financial situation limits forced sales during a slowdown.
Overall, these elements create a form of inertia in the French real estate market: prices can fall, but they are more resistant to shocks than in more speculative or more indebted markets. In other words, there are no 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 significant 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 delay the sale in the hope of preserving their price. This mismatch blocks negotiations and greatly reduces the number of transactions. The market therefore does not collapse: it seizes up. Exchanges become rare, residential mobility slows down, and overall it gives the impression of a “halted” 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 blockage. The calculation of the usury rate, the maximum legal lending rate, has thus been temporarily converted to a monthly basis 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 certain cases to be approved beyond the standard criteria. The objective is clear: to maintain minimal access to credit despite the tightening conditions. These interventions help cushion the shocks. They make a pure crash scenario less likely, even though they cannot prevent a prolonged slowdown.
This is not a crash, just a disruption
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 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 need to be more patient and more strategic.
The real risk is not a sudden crash, but a market that is durably stuck, with fewer transactions and reduced residential mobility. This can have broader economic effects, notably on the construction sector.
The real estate sector’s euphoric period is over. We have entered a more demanding environment, where credit once again becomes a rare 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, do not advise, do not own shares in, do not receive funds from any 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