The Bank of Lithuania has been observing a rapid rise in property prices since the beginning of the year, and economists are divided – some believe that a property bubble is forming, while others say that the price increase is justified for now.
Tadas Povilauskas, an economist at the Lithuanian SEB bank, pointed out that typical signs of a property bubble are being observed, and stressed that the current situation is caused not only by price dynamics, but also by household expectations. The economist said that the bank’s survey shows that almost 70% of residents expect housing prices to increase in the next 12 months. Currently, prices are at the second highest level in the last 14 years.
Povilauskas said that housing prices are growing faster than wages, which is reducing purchasing power.
Meanwhile, Swedbank economist Greta Ilekytė believes that it is too early to talk about the formation of a bubble. She said that a bubble forms when wages grow rapidly over a long period of time and the real estate market loses its sustainability, but this cannot be observed at the moment. According to the Swedbank economist, one of the arguments against a market bubble is the level of supply – currently there are more than 5,000 available homes on the first-time market, which is the highest number in history. Ilekytė noted that some buyers have only now entered the housing market because they were expecting a drop in interest rates, and previously simply could not afford to buy a home.
Daumantas Skinkys, an economist at the Bank of Lithuania, said that
the growth of house prices has clearly accelerated over the year, and house prices have increased by 10-12% over the year.
Indrė Genytė-Pikčienė, an economist at Artea Bank, also sees the risk of a bubble, noting that lower interest rates encourage more borrowing. Genytė-Pikčienė explained that demand remains high, meaning that future prices will largely depend on supply and whether real estate developers can meet demand.
Mindaugas Statulevičius, president of the Lithuanian Real Estate Developers Association, said the market is on the upswing, but he does not see a risk of a real estate bubble yet. He said that large cities are growing and demographics are favorable – what is built is also sold. There is no construction of housing for “storage,” and there is no loss of sustainability. Statulevičs added that it is too early to talk about serious tensions in the real estate market.
Read the full article in English here: https://www.lrt.lt/en/news-in-english/19/2805249/is-lithuania-s-housing-market-becoming-a-bubble
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