The housing affordability index decreased in the capitals of all three Baltic states in the first quarter of this year, representatives of “Swedbank” report, referring to the latest data of the “Baltic Housing Affordability Index”.
In the first quarter of 2023, the most affordable housing among the capitals of the Baltic states was still in Riga, followed by Tallinn and Vilnius.
In the first quarter of this year, the Housing Affordability Index in Riga was 153.5 points. Such an index value means that the income of a household whose income corresponds to one and a half of the average net monthly salary in Riga and who wants to buy a 55 square meter apartment in the first quarter was 53.5% higher than it would be necessary to divert no more than 30% of family income.
At the same time, the housing affordability index was 104 points in the first quarter of this year in Tallinn, and 99.7 points in Vilnius.
“Swedbank” representatives indicate that in the first quarter of this year, the housing affordability index in Vilnius fell below 100 points for the first time since 2009, which means that housing with a mortgage loan was no longer available for the average household in the first quarter.
In Tallinn, the value of the housing affordability index was 104 points, however, housing in the first-time market has not been affordable for the average household for some time.
On the other hand, in Riga, where prices are the lowest in the Baltics, as before, housing availability remained the highest among the Baltic capitals – the value of the index was 153.5 points in the first quarter. However, for apartments located in houses that were built or renovated after 2000, housing affordability is much lower – the value of the housing affordability index in the first quarter of this year was 103.5 points, which means that relatively newer apartments for the average Riga household are on the verge of unaffordability.
“Although wages grew even faster than before, the rise in interest rates and persistently high apartment prices meant that it is becoming more and more difficult for the average household to afford to buy their own home. In the near future, the availability of housing will continue to shrink, as interest rates will continue to rise,” representatives of “Swedbank” say .
At the same time, the bank also notes that the European Central Bank’s (ECB) rate hike sprint is probably close to the end, and as wage growth remains rapid, housing availability will begin to recover at the end of the year. This will help boost activity in the market, but a sharp jump in activity is not expected amid the overall uncertainty.
The bank says that buyers have become more cautious, and demand for housing decreased in the first quarter. In the first three months of the year, the number of transactions decreased by 11% compared to the first quarter of 2022, but compared to the fourth quarter of last year, the decrease was 6.6%. The decline in market activity is recorded in all market segments – it affects both the cheapest and often – energy-inefficient housing in Soviet serial buildings, as well as the more expensive first-time market. The number of reservations in newly built housing is also lower than usual. Buyers are in no hurry to book apartments under construction, but prefer to wait until the project is completed. Meanwhile, the supply of new apartments remains stable.
“Swedbank” estimates show that in the first quarter of this year, compared to the first quarter of 2022, the growth rate of the average weighted apartment price in Riga slowed down to 2.7%. On the other hand, compared to the fourth quarter of last year, there was a decrease of 2.7%.
The increase in prices compared to the corresponding period of last year was mainly determined by apartments built or renovated after 2000 – their prices were on average 16% higher than a year ago. The price increase was even faster for new projects in the first-time market.
“Statistics currently record deals with new projects that were booked about a year ago, so the prices of deals concluded in the new apartment segment often reflect the past situation. On the other hand, the bookings made today are at prices that are about a quarter higher than last year before the start of the war “, bank representatives note.
Although construction costs are no longer growing as fast as before, they are still significantly higher than a year ago, which means that sales prices are also above 2022 levels. Housing in the first-time market of Riga is probably already unaffordable for households with average incomes. Despite the high prices, price correction in the segment of new apartments is not expected, representatives of “Swedbank” say.
The bank also states that in the largest market segment – apartments in Soviet serial buildings – a price drop has been observed since the middle of 2022. Although prices appear to have stabilized in the first quarter, further price declines are possible if demand remains weak.
“In general, 2023 is expected to be a relatively slow year in the housing market – high interest rates, the overall cost of living and uncertainty will most likely mean subdued market activity. We predict that there will be price adjustments in certain segments. Buyers could choose to postpone purchases while interest rates continue to rise. However as interest rates stop rising and wages continue to grow rapidly, the availability of housing will no longer continue to fall and activity could gradually recover,” the bank predicts.
In calculating the index, it is assumed that a mortgage loan with a term of 30 years is taken for the purchase of a house; the average mortgage loan interest rate available on the market is paid, as well as that the household’s monthly income is equivalent to one and a half of the average net monthly salary received in the respective capital city.
Swedbank is the largest bank in Latvia in terms of assets.
2023-06-13 15:24:34
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