“The real estate market is suffering”, warns Henry Buzy-Cazaux, founding president of the Institut du Management des Services Immobiliers (IMSI), in Capital on 17 April: over the last twelve months, purchases of new and old housing have fallen by 30% , just like construction, which is supposed to increase and renew the stock.

This scenario is a serious threat to employment in the sector, which is the first in the economy with two million direct and indirect jobs, and also to public revenue, of which real estate is one of the main forms of resources. With the needs of households not being satisfied, this creates a social risk and a brake on their mobility.

Prices are not falling, but the signing of sales agreements fell by 25% in the first quarter at Orpi, one of the main networks of real estate agencies in the country, a warning sign of things to come. Demand is shrinking, mortgages are becoming more expensive: for the first time since 2014, the average interest rate has exceeded 3%.  

Apart from the more stringent loan conditions, real estate is subject to an accumulation of constraints linked to the fight against global warming and which are becoming truly suffocating. The “DPE” (Energy Performance Diagnosis) prevents the rental of badly classified apartments (G+ since 1 January, G in 2025, F in 2028, etc.), and many owners do not want to carry out the work and prefer to sell at a loss.

 From 1 April, the sale of a dwelling rated F or G must be accompanied by an “Energy Audit” detailing the work to be carried out in order to improve its insulation. For a detached house, this work can be estimated between 40,000 and 60,000 euros, i.e. 30 to 40% of its value in areas where there is no imbalance between supply and demand for rental housing!

Rental real estate, which attracts investment and contributes to renewing and increasing the existing, sees its yields drop: economic context (increasing interest rates), weight of taxes (property tax), ecological standards. Especially since rents are not in line with acquisition prices and charges because they are regulated (and some cities even block them).

Is social housing a solution? The new PLU (Local Urban Plan) of the city of Paris sets the objective of 40% social housing by 2035, in particular by requiring owners of private housing or office buildings “to add social housing in the event of restructuring. A prospect that provoked an outcry among both investors and property developers”. (Les Echos, 11 April). This could discourage private capital from investing…

Between high taxation, restrictive and costly energy regulations, regulated rents and social housing, this context is not very favourable to private real estate. 

Despite a slowdown, as shown by the latest US GDP figures, growth remains resilient. This is due to the supply crisis that started in 2020 and which is only now slowly abating. Household savings accumulated during the pandemic have not yet been used.

It makes it possible to avoid falling into recession both in the United States and in the eurozone. This resilient growth explains the good performance of equity indices because companies have managed to maintain their margins.

While headline inflation has benefited from the fall in energy prices (under 7% headline inflation compared to March 2022), it has, however, experienced a significant increase in services, fuelling core inflation, which reached a peak of 5.7% over one year in the eurozone.

Fuelled by the fall of Silicon Valley Bank (SVB) and the sale of Credit Suisse, the markets experienced a period of stress and instability, especially within the banking sector.

However, the bankruptcies of SVB, Signature bank and Credit Suisse cannot be compared to the 2008 financial crisis. Banking regulations have changed significantly as a result, and the authorities have been able to act quickly. 

The fall of the SVB is linked to an excessive concentration of its activities and a clientele mainly composed of American high-tech companies. It has not been able to meet its clients’ demands for reimbursement of deposits. 

The intervention of the American authorities made it possible to assure depositors of recovering their assets, and to reassure the markets, but at the same time it demonstrates that the regulations in force in the United States have not worked.

In Europe, Credit Suisse was taken over by its historical competitor UBS below its market value. Credit Suisse has been talked about for a long time with recurring losses despite its very profitable Swiss activities (wealth management, corporate credit). 

Apart from the management errors and the particular circumstances of these institutions, other underlying factors have accelerated these bankruptcies, including the rise in interest rates which is taking many financial players by storm; the bond market is under strong pressure.

The monthly closings of equity indices do not necessarily reflect this phase of banking stress. The CAC 40 is very close to its historic highs, just fifty points from 7,400 points, with an increase of 1% over the last week of March and the quarter. European equity indices also experienced a remarkable rebound, with levels very close to their recent highs. The S&P 500 closed above 4,000 points.

Les médias parlent de « mars rouge » à propos de l’inflation sur les prix alimentaires alors que les négociations entre les fournisseurs et la grande distribution se sont terminées le 1^er mars.

Réalité ou craintes exagérées ? Nous verrons bien, mais l’inflation apporte dans ses bagages un autre problème : l’incertitude.

Lorsque nous étions entre 0 et 2% de hausse des prix annuels, nous avions aussi l’assurance que ce serait encore le cas dans les années qui viennent, et cette certitude est très favorable à l’activité économique. Lorsque l’inflation démarre, elle n’est jamais stable, elle devient volatile. Un pays n’a pas, par exemple, 40% d’inflation, ou alors juste pendant quelques mois, ensuite ce chiffre monte ou, plus rarement, descend, sans que les raisons apparaissent clairement. On le voit actuellement en Turquie, en Argentine, au Liban, etc. Pour les entrepreneurs, les investisseurs, les consommateurs, il devient impossible de faire des calculs et des prévisions à moyen et long terme. 

Des hausses de prix de 40% ou plus, c’est ce que nous connaissons dans le domaine de l’énergie : le prix du gaz vendu en Europe a explosé cet été avant de s’effondrer à l’automne, même s’il reste plus cher qu’aux États-Unis. La crise énergétique est-elle terminée ? Non, ce n’est pas aussi simple : le prix du gaz a grimpé parce que l’Europe a décidé de remplir ses stocks après avoir arrêté ses achats de gaz russe suite aux sanctions. Il fallait éviter la panne en plein hiver, et donc acheter en urgence. Une fois que les réservoirs sont remplis, le flux d’achat s’arrête, et les prix chutent, d’autant que l’hiver s’avère particulièrement doux. Mais cela ne va pas durer car les stocks européens ont une contenance d’environ deux mois de consommation, en conséquence, il faudra reprendre les achats et le prix risque à nouveau de bondir…

Des marques de conserverie et de plats préparés ont mis à l’arrêt début janvier leurs principaux sites de production après avoir vu leurs factures d’énergie multipliées par dix. La baisse des prix de l’énergie va-t-elle les faire changer d’avis ? Leurs dirigeants savent bien que les achats de gaz des pays européens vont repartir et peser sur les prix. De combien ? 

Une forte inflation est également très différenciée : certains secteurs, comme le numérique ou le luxe, y échappent presque, tandis que d’autres, dépendant de l’énergie comme l’alimentaire, voient leurs prix exploser. Les distorsions sont énormes, la « redistribution des cartes » au sein de l’économie est brutale, les capacités d’adaptation sont mises sous tension. La politique économique devient aussi plus incertaine : les gouvernements annoncent des aides mais les dispositifs se révèlent souvent complexes.

Cette incertitude rétrécit l’horizon temporel, prendre des décisions devient plus complexe, les investissements, conditions de la croissance, sont sensibles. C’est aussi pour cette raison qu’il faut vaincre l’inflation. 

Faced with the return of inflation, central banks reacted by raising their key rates. After holding it at zero for a long time, the US central bank (Fed) raised its key rate to 4.25-4.50% – and further increases are expected – while the European Central Bank (ECB) has begun the same manoeuvre, at 2.00-2.50% today; further rises are expected.

The rise in key rates makes money more expensive, interest rates rise, credit is restricted, global demand decreases and, to adapt, supply falls by lowering its prices. Inflation is then slowed down, at the cost of a more or less significant recession. But it is not always so simple, especially if a price-wage spiral starts (as during the 1970s), with rising wages fuelling price rises without the monetary authorities being able to do much about it.

We already note that inflation in the United States seems to be stabilising at 8%, giving hope for a decline. On the other hand, the euro zone has just crossed the symbolic bar of 10% without any sign of slowing down. How can we explain this discrepancy?

These two major economic areas turn out to be in very different situations in the face of the energy crisis we are going through: the United States is energy independent, thanks to the exploitation of gas and shale oil, unlike Europe, which is highly dependent and therefore correspondingly poorer. Its imports are increasing in value while its exports are slowing down as its competitiveness deteriorates with the rising costs of raw materials and energy. The double penalty for Europe, which sees its trade balance plunge into the red.

While the price of oil is relatively uniform worldwide, because it is easy to transport (supertankers), the price of gas is very heterogenous due to transport costs (by gas pipelines or by liquefaction for LNG). The United States therefore benefits from very low gas prices while, in Europe, the price is very high. As a result, Tesla calls into question the construction of its battery factory in Berlin to repatriate it to the USA. In France Safran suspends the construction of its new factory while Duralex stops its production of glassware for several months, examples abound. 

This deterioration in the terms of trade depreciates the euro against the dollar, which makes the raw materials  that must be paid for in dollars all the more expensive, this is called “imported inflation”. The ECB’s delay in raising its rates also explains this depreciation.

In the end, the ECB faces a much more complex situation to manage: the rise in interest rates can accentuate a recession without improving anything on the inflation front, which essentially depends on energy prices. It must also act more tactfully, taking into account the debt of the more fragile countries of the South, while the Fed only has to worry about the federal debt. It seems that, in Europe, inflation is here to stay, and even to increase if the euro devalues further.

Real estate in France has been experiencing a rise in prices since the early 2000s. The Covid pandemic, with the fall in GDP that followed the confinements, has not reversed this trend. In Europe, despite the specificities of each market, prices are also rising to a greater or lesser extent, even in Germany, which had long been spared.

The fundamental cause is the expansionary policy of the European Central Bank (ECB): the quantity of money is increasing more rapidly than the volume of goods and services available, consequently prices rise. Not mechanically of course, because at the same time the speed of the circulation of money is falling (during the Covid, savings have increased, money is “frozen”), which mitigates the progression of prices. But in recent months, we have experienced unprecedented levels of money creation..

The balance sheet of the ECB has increased by more than 3,000 billion euros since the start of the Covid crisis, from 5,000 to more than 8,000 billion euros. It is literally money created ‘out of nothing’, by a paper exercise, in order to subscribe to the loans issued by the States facing the gigantic deficits caused by the pandemic. There had been so-called “money printing” before, during the subprime crisis of 2008, then during the Greek debt crisis in 2011, but the current period far exceeds them both. The ECB’s balance sheet total is equivalent to 81% of Eurozone GDP, compared to 37% for the Fed, 41% for the Bank of England. Only the Bank of Japan has more (134%), but the debt is entirely held internally, which changes the situation. The vertiginous rise we are witnessing is not about to stop as the budget deficits in France and in the countries of southern Europe remain high and are slowly being reduced.

It is very likely that monetary policy in the eurozone will remain expansionary in the years to come, for several reasons:

– the sustainability of public debts must be ensured, a rise in rates would strangle several countries and push them into default;

– it is necessary to allow the financing of the energy transition, which is very costly. Moreover several countries, including France, are beginning to issue “green bonds” for this purpose;

– the current rise in inflation is considered by the ECB to be transitory, and therefore does not call for a change in direction.

These low rates which, with the return of inflation, bring negative real interest rates, will cause an increase in the prices of real estate, stocks, cryptocurrencies and real assets in general (gold, works of art, vintage cars). Indeed, these assets cannot be “printed”, Picasso paintings or Ferrari Daytonas are no longer produced, and gold or real estate increase very little from year to year, so they constitute safe havens to preserve purchasing power over time. Stocks and Bitcoin are volatile and put many investors off, the art market is complex, so real estate is the investment choice for most savers and for many investors.

As a result, housing prices will continue on this rising trend and, except for those who already have significant assets, this is not good news, for several reasons: 

• it makes access to housing difficult for young people and the middle classes;
• wealth inequalities will increase, generating a feeling of injustice and protests;
• such a rise runs the risk of a financial crisis if real estate prices ever drop.

In addition, the energy transition generates heavy constraints: “Technically, the bans on renting ‘energy strainers’ could remove 3 million housing units from the rental stock, including 700,000 in 2025 alone!” according to Jean-Marc Torrollion, President  of the FNAIM (French Federation of Real Estate), with many owners recoiling from the cost of the work. And when supply is restricted, prices increase, in this case for rental, but energy saving standards will also make construction more expensive.

Commercial real estate will also be impacted: from 1 January 2022, landlords and occupants of surfaces of more than 1,000 m² will be forced to reduce their energy consumption on the basis of those of 2010 by -40 % by 2030 (i.e. in just 8 years), on the pretext that buildings represent 25% of greenhouse gas emissions in France.

 What are the means of action to slow down or stabilise property prices?

• The ECB renouncing its expansionary monetary policy, but this scenario is not very credible, as default on sovereign debt constitutes too serious a risk;
• Use the macroprudential regulation of banks (increase in capital requirements associated with mortgage loans) in order to restrict credit demand. The effect will be limited because the incentive to invest in real estate will remain strong (inflation will not be so transitory, as stated Jerome Powell, Chair of the US Federal Reserve);
• Tax real estate capital gains more heavily, with the underlying idea, still very popular in France, of “making the rich pay”. This measure would nevertheless be costly in terms of votes, and have limited effect, as the remaining capital gains would in any case be a better option than letting your money lie dormant.

As we can see, there is no real solution to the excessive rise in real estate prices due to a durably expansionary monetary policy. We will have to deal with and accept the disadvantages of this situation: difficulty in accessing housing, increase in wealth inequalities, risk of financial crisis in the event of a market downturn. However, a market with rising prices is also an opportunity, of course, even if the level of risk increases. The housing market will become more difficult, but also more exciting!

On 15 August, we celebrated an important anniversary, even if it did not make the headlines, a half-century anniversary, the figure is symbolic, that of the suspension of the convertibility of dollars into gold, proclaimed by Richard Nixon on 15 August 1971 during a televised speech. A suspension announced at the time as temporary, which is not without irony, but we were then moving into uncharted territory.

This was a fundamental shift because money had always been linked to gold or silver. It even identified with it for centuries through the coins that circulated, or documents that attested that they represented such weight in gold, which allowed the development of banking. With the Bretton Woods Agreements signed in 1944, we were no longer in a strict gold standard as in the nineteenth century but in an unbalanced system where gold and the dollar had the same status of reserve currency, in a ratio of 35 dollars per ounce (31.1 grammes) the other currencies being in the background. The writing was on the wall and the temptation was great for the United States to make the dollar the only reserve currency in the world and to free itself from the constraint of gold, which it then went on to do half a century ago.

However, we must not idealise the past, the period before 1971 did not constitute a monetary “golden age”, manipulations have always existed: gold coins were chipped, their gold content fell without their face value changing, the strict gold standard did not prevent banking crises (end of the 19th century), the reintroduction of the gold standard without taking into account the inflation due to the First World War caused serious imbalances during the interwar period. But, despite everything, the physical limitation of the quantity of gold available was a constraint, whereas now the dollar and the major currencies can be printed without limit. We speak of “fiat money”, the term fiat being a Latin word meaning “let it be done”, which is found in the expression “fiat lux” (“let there be light”) used by God in Genesis.

What we have lost with the gold standard is a safeguard, moving towards a regime where money can be created according to need without structural limits. However, this is not without risk. Inflation, although brought under control today, can easily turn destructive. Beyond the dispossession of savers, it can erode purchasing power, create shortages and disrupt the economic calculations of entrepreneurs, to the point of casting doubt on the value of the currency, in the worst scenario. To regain a lasting balance, states must imperatively reduce deficits and establish a timetable for the end of stimulus plans which, although they make it possible to deal with an exceptional situation, have the disadvantage of increasing the debt. Growth can also be found in lowering the level of taxes and levies, and in simplifying standards and bureaucracy.

Therefore, a healthy situation comparable to the 1980s and 1990s could be restored. In brief, we should be much more careful with money and impose a discipline comparable to that of the gold standard, even if it means adopting more modern criteria. The experiment of a dollar having no other reference than itself almost came to a rapid end with the price change of the 1970s (13.5% inflation in 1980 in the United States). However, energetic central bank (Fed) boss Paul Volcker increased the policy rate to 20% in 1981, a staggering figure today, and he brought inflation under control within a few years.

The 1980s and 1990s combined low price increases, economic growth and the relative stability of the price of gold, between 300 and 400 dollars an ounce, as if we had returned to a de facto gold standard … But how can we explain this? The inflation of the 1970s having served as a lesson, states contained their deficits, reformed (except France), real interest rates were high (which corresponds to a normal situation), and the growth of the economy was not based on debt but came from the deregulation of important sectors such as telecoms (which will give birth to the internet and the mobile phone), the airline sector (explosion of mass tourism); it is the supply policy started by Ronald Reagan and Margaret Thatcher. Organic growth and healthy currency were the reasons why we had returned to a quasi “gold standard”.

A total turnaround occurred at the beginning of the new millennium with the crash of technology stocks in 2000 and the attacks of 11 September 2001: in an attempt to avoid a depression, the Fed sharply cut its policy rate , money became “free”. A mortgage bubble followed, facilitated by a deleterious financial innovation, the subprimes, and we know the rest of the story with the crash of 2008. The debt crisis of the eurozone in 2010-2012 brought the European Central Bank (ECB) to follow the Fed’s policy. The price of gold evolved to progress from 2002, then especially 2005 to pass from 400 dollars an ounce to nearly 1,900 dollars in August 2011. The central banks took matters in their own hands, managed to reassure, and gold fell in 2013 and 2014, but resumed its progression from mid-2018. Then the emergence of the Covid-19 pandemic and the lockdowns caused budget deficits to explode and led central banks to spin the printing press to an unprecedented level.

This is where we are now, and the novelty of recent months is the return of inflation: the United States is on an average trend above 5% per year, Germany is at 4%, France should soon pass the 2% mark. The problem is that it is now impossible to do what Paul Volcker did in his time, that is to say to significantly increase the policy rate to defeat inflation, there is indeed such an amount of debt, both public and private, that the entire monetary and financial system would face a terrible crisis.