The availability of houses in Riga did not change in the second quarter

The availability of housing improved in the second quarter of this year in the two capitals of neighboring countries – Tallinn and Vilnius, but they almost did not change in Riga, according to reports. Bank of Sweden Review of Baltic housing affordability.

This is largely due to a slight increase in the average price of an apartment, as well as still high interest rates for new mortgage loans. In June, the ECB cut key interest rates for the first time since 2019, and we predict that rates will be cut twice more this year. Wage growth has been rapid and will continue at a slightly slower pace. Accordingly, in the second half of the year, it is expected that housing availability in Riga will improve.

In the second quarter of 2024, a family with an income equal to 1.5 of the average net monthly salary could afford a living space of around 56 m2​​​​​​​​in Tallinn, just over 50 m2 in Vilnius, with the help of a mortgage loan. On the other hand, the availability of housing in Riga remained relatively high and an average family could, moving no more than 30% of the family income to a mortgage loan to serve, to pay accommodation of about 83 m2 (in the first market – about. 41 m2).

Apartment market activity is weak. Compared to the situation in the 1st quarter, shopping activity has increased. However, looking at it in a wider context, it must be concluded that, like the Latvian economy, the housing market is also in stagnation, since the number of transactions in the 2nd quarter was around the level of the year -last year

In the market for the first time, the picture is brighter – the decline in the number of transactions increased slightly and in the first seven months it reached almost 40% compared to last year. The number of registrations is also low.

According to preliminary data, the average price of some apartments in Riga increased compared to the first quarter, and after a year’s decline, it increased compared to the second quarter last year. Although the decline in prices continued in detached and non-renovated homes, its impact was also felt on the prices of upmarket first-time and renovation homes. New home price increases remained slightly above 10%, but rates of price growth have slowed significantly. The number of unsold new homes did not rise, but remained at the highest level in recent years. This gives new property seekers the opportunity to negotiate or ask for various “bonus” benefits. However, no price change is expected. Construction costs are still rising, but the rate of growth has become normal.

High interest rates slow down market activity. Especially in the market for the first time, where last year alone, about a fifth of transactions were completed without using a mortgage loan. In June, the long-awaited ECB rate cut took place, with key interest rates declining by 0.25 percentage points. Although the drop in ECB rates is still very small, markets and prices expect another drop. The six-month EURIBOR rate in August has already fallen to last April’s level. However, we are still not seeing a major change in trends in the housing market. It appears that rates will need to fall further to see much improvement in activity. Despite the drop in EURIBOR, the APR applied to new loans is still very high. For Estonians and Leishes, the decline in the effective rates of housing loans is more evident. We expect the ECB to cut rates twice this year and continue the decline next year.

As interest rates fall and wage growth rates remain strong, housing availability will increase in the second half of the year. Again, competition between commercial banks is increasing, and more favorable credit conditions for new borrowers will help increase activity in the market.