Housing Affordability Index for Baltics
Measures how well households can afford their purchases of apartments in the three Baltic capitals
10 December, 2012
Economic Research Department.Swedbank AB. SE-105 34 Stockholm. Phone +46-8-58591000E-mail: firstname.lastname@example.org www.swedbank.comLegally responsible publisher: Cecilia Hermansson, +46-8-58597720
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The housing affordability index (HAI) strengthened in Riga andVilnius, but weakened in Tallinn although from a high level
During the third quarter of 2012, housing affordability strengthened the most in Riga: the hous-ing affordability index (HAI) – which is calculated for a family whose income is equal to 1.5 of average net wages with an average-sized apartment of 55 square meters – increased from140.4 in the second quarter this year to 152. Over the same period, the HAI in Vilnius in-creased less - from 109.8 to 113, and in Tallinn it decreased marginally to 163.6. This meansthat in the third quarter household wages in Riga were 52% higher than needed to afford anapartment, in Vilnius by 13%, and in Tallinn by 63.6% — according to our norm of 30% of netwages for mortgage costs.
In Tallinn, the HAI declined marginally because of a 3.6% seasonal quarterly decrease in netwages. A 26-basis-point decrease in interest rates had a significant positive, but smaller, ef-fect on affordability. Slightly lower apartment prices contributed somewhat to higher afforda-bility as well.
In Riga, affordability was boosted mostly by interest rates, which were lower by 47 basispoints than a quarter ago. The decrease in apartment prices (of 1.7%) and slightly higher wages (0.5%) also increased the HAI.
In Vilnius, the affordability increase was fuelled mostly by a decrease in interest rates of 32basis points on a quarterly basis. Higher wages (0.1%) lifted affordability, but to a muchsmaller extent. A larger increase in the HAI was held back by a 1.3% rise in apartment prices.
The time needed to save for a down payment increased by almost two weeks in Vilnius, to36.9 months, and by approximately three-and-a-half weeks in Tallinn, to 25.8 months, but de-creased by two-and-a-half weeks in Riga, to 26.3 months.
The HAI is 100 when households use 30% of their net wages for mortgage costs. When theHAI is at least 100, households can afford their housing, according to the established norm.The higher the number, the greater the affordability.
Housing affordability index
163.6179.5152.0156.4113.040506070809010011012013014015016017018019020052006200720082009201020112012TallinnRigaVilniusSources: National central banks, ECB, National statistical departments, Lithuanian Centre of Registers, Latvian State Land Service and National Real Estate Cadastre, Estonian Land Board andSwedbank.
TallinnRigaVilnius2005109.366.569.6200676.360.356.5200767.253.451.0200886.677.855.32009161.5140.586.42010160.4137.3103.22011154.2145.1102.82012 Q1155.3139.8104.92012 Q2163.7140.4109.82013 Q3163.6152.0113.0