Housing affordability in Baltic States improved slightly in Q4 2023, according to Swedbank representatives.
In Riga housing affordability index (MP) reached 147.6. This value means the income of households whose income meets 1.5 average net monthly wage amount in Riga and that want to acquire a 55-square meter apartment was 47.6% higher than necessary to divert at least 30% of the family’s income towards mortgage loan maintenance every month.
In Tallinn and Vilnius, on the other hand, the index remained below 100 points, at 88.7 and 89.3 respectively.
Swedbank reports that after nearly a two-year drop housing affordability in Riga has recovered slightly. MPI went up, net wage growth remained rapid in Q4 2023, compensating the slight rise in interest rates and housing prices. Also in Vilnius and Tallinn, putting aside the impact of one-off factors, the availability of housing improved, but in general, for the average household in the neighbouring capitals, apartments continued to be unreachable.
Generally, housing affordability in Riga was provided by relatively cheap serial apartments, whereas houses built or renovated after 2000 remained out of reach of average households in Riga. Wage growth continued and the lower loan rates will help improve housing affordability in Riga and in neighbouring countries this year, Swedbank predicts.
Market activity dropped slightly in almost all segments in the fourth quarter compared to the third quarter. In contrast, compared to the respective quarter in 2022, the number of transactions increased only in the Soviet serial project segment. The number of bookings on the primary market remained low.
Housing developers expect market activity to recover once potential buyers see a stable reduction of EURIBOR rates. However, it is important to take into account that in 2023 nearly 60% of all deals on the second-hand market and more than one-fifth of deals on the first market in Riga and Pieriga happened without mortgage loans.
According to the bank, this means that, in addition to higher interest rates, there were other reasons for the slow market activity, such as the geopolitical background and weak development of Latvia’s economy. Market activity is also slowed by thew new support for mortgage loan takers. Households with existing mortgage loans that receive support are unlikely to rush with housing purchase. This is because new loans are not eligible for support.
The weighted average apartment price in Riga last year as a whole and also in the last quarter of the year was below the 2022 level. The decrease in the average price was determined by the fall in the prices of serial apartments. Compared to the third quarter of 2023, at the end of the year there was an increase in prices in all segments.
EURIBOR’s six-month rate reached its peak in Q4 2023 and had since gone down, the bank reported. Swedbank’s latest outlooks indicate the European Central Bank (ECB) will start lowering the base interest rates in June. This means a more rapid MPI improvement could come around the second half of the year. (BNN)
