Q2 of 2022 was unfavourable for Latvian residents purchasing dwellings – housing availability is down across all Baltic States. According to Swedbank economist Laimdota Komare, Housing availability index in Tallinn is down significantly and is the lowest among Baltic States. Housing availability in Riga and Vilnius is down as well but remains close to pre-pandemic levels.
In Q2 housing availability was weakened by apartment price growth, which was more rapid than wage rise in all three Baltic capitals.
On the new apartments market prices increased largely due to growing construction costs and limited offers. The pandemic left an impact as well. Meanwhile the strong demand for housing has extended to second hand market, where prices are on a rise.
Despite the rapid price rise, at current market conditions and estimates, the average households in Baltic capital cities can still afford purchase of a dwelling.
Housing availability index in Riga was 191.2, according to Komare. This index value means that households whose income is equal to 1.5 average net monthly wage in Riga and which want to purchase 55 m2 large apartment had income that was 91.2% higher than what is required to afford no more than 30% of the family’s income to cover mortgage loan repayment, the economist explained.
In Riga housing availability remains higher than in Vilnius and Tallinn. Similarly to neighbouring countries, apartment prices in Latvia grew faster then wages. Wage rise in Riga was at 7.5% over the course of the year. The average apartment price growth reached and exceeded 12%.
Price rise was observed across all apartment market segments. Prices of apartments in buildings renovated after the year 2000 and located outside the city centre increased by 9.7%. This segment includes both recently built and second hand apartment market. Together this accounts for 20% of all deals.
Although registered price rise is more rapid than previously, it does not reflect the actual price rise.
A large portion of new apartments are reserved while the building is still under construction. This results in a situation when statistical information reflects year-old reserved prices. Currently the situation on the market indicates that the prices of new apartment reservations have increased by about 30% in the last year to year and a half. In most cases prices already exceed 2 000 EUR/m2.
High prices of new projects motivate buyers to consider buying second hand apartments in buildings built after the year 2000. Demand in this market segment is up, which means prices are up as well.
Housing availability remains high. However, it does continue going down in the second half of the year.
To limit inflation the European Central Bank has increased the based interest rate twice already. There are plans to continue doing this in the future. This affects EURIBOR rates. In six months EURIBOR rate reached 1.76% (22 September 2022). The price rise together with interest rate growth has a negative impact on housing availability. It could reduce interest for housing and general activity on the market.