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Baltic Housing Affordability Index - March 14, 2013

Baltic Housing Affordability Index - March 14, 2013

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Published by Swedbank AB (publ)
Baltic Housing Affordability Index - March 14, 2013: The housing affordability index (HAI) increased to 127.8 in Vilnius, 156.7 in Riga, and 171.8 in Tallinn
Baltic Housing Affordability Index - March 14, 2013: The housing affordability index (HAI) increased to 127.8 in Vilnius, 156.7 in Riga, and 171.8 in Tallinn

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Published by: Swedbank AB (publ) on Mar 14, 2013
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Housing Affordability Index for Baltics
Measures how well households can afford their purchases of apartments in the three Baltic capitals
 14 March, 2013
Economic Research Department.Swedbank AB. SE-105 34 Stockholm. Phone +46-8-58591000E-mail: ek.sekr@swedbank.com www.swedbank.comLegally responsible publisher:Magnus Alvesson, +46-8-5859 3341.
Vaiva Šečkutė +370 2 582156; Kristilla Skūzkalne +371 67
445 844; Tõnu Mertsina+372 888 7589
The housing affordability index (HAI) increased to 127.8 in Vilnius,156.7 in Riga, and 171.8 in Tallinn
During the fourth quarter of 2012, housing affordability strengthened the most in Vilnius: thehousing affordability index (HAI) – which is calculated for a family whose income is equal to1.5 of average net wages with an average-sized apartment of 55 square meters (sq. m.) – in-creased from 113.1 in the third quarter of that year to 127.8 in the fourth. Over the same pe-riod, the HAI in Tallinn increased from 163.2 to 171.8 and in Riga from 151.7 to 156.7. Thismeans that in the fourth quarter household wages in Vilnius were higher than needed to affordan apartment by 27.8%, and in Tallinn by 71.8% and in Riga by 56.7% — according to our norm of 30% of net wages for mortgage costs.
In Tallinn, the HAI increased mainly due to a 5.9% increase in wages. A 13-basis-point de-crease in interest rates was more than outweighed by the negative effect of a 2.4% rise inapartment prices.
In Riga, affordability was lifted by a 2.3% increase in wages and a 1% fall in apartment prices.Interest rates stayed unchanged at 3.4%.
In Vilnius, affordability was boosted mostly by a 4.9% decrease in apartment prices and a 32-basis-point decrease in interest rates. A 3% rise in wages also had a positive, albeit, smaller effect on affordability.
The time needed to save for a down payment decreased by almost two months and threeweeks in Vilnius, to 34 months, and by almost a month in both Tallinn and Riga, to 25 and25.5 months, respectively.
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
171.8179.5156.7156.4127.840506070809010011012013014015016017018019020052006200720082009201020112012TallinnRigaVilniusSources: 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 Q1155.5140.8104.92012 Q2163.8145.5109.82012 Q3163.2151.7113.12012 Q4171.8156.7127.8
Housing Affordability Index for Baltics 14 March, 2013
Components of the HAI: apartment prices, interest rates, and wages
Apartment prices
From the third to the fourth quarter of 2012, the price of apartments in the capital of Estonia,Tallinn,grew by 2.4%, while decreasing by 1% and 4.9%, respectively, in the capitals of Latvia and Lithuania,Riga and Vilnius. On an annual basis, the price of an average-sized, 55 sq. m. apartment grew themost in Riga (5.7%); the price also rose in Tallinn (5.2%), but decreased by 4.7% in Vilnius.In the fourth quarter of 2012, this standard apartment was the most expensive in Tallinn, where itsprice reached EUR 61,975. This same apartment cost EUR 58,802 in Vilnius and EUR43,233 in Riga.In the fourth quarter, apartment prices in Riga were 49% lower than those seen during the peak.Prices in Vilnius and Tallinn were, respectively, 36% and 32% lower than their peaks; the price correc-tion was the smallest in Vilnius, and the prices in Tallinn recovered faster from their trough than in theother Baltic capitals.In Riga, where apartment prices are still lower compared with their peak, annual price growth re-mained the fastest among Baltic capitals; however, it slowed from 7.7% growth in the third quarter to5.7% in the fourth as prices slightly contracted. This decline was mostly driven by price decreases for newly built houses in the suburbs; meanwhile, prices of Soviet-era blockhouse apartments are largelyflat. However, the number of deals is still low, hence, price volatility is high. Overall, the number of new loans issued for households remains generally low, and an immediate improvement is not on thehorizon.Annual apartment price growth in Tallinn increased from 3.1% to 5.2%. Although the number of dealsis still growing in annual comparison, the growth rate in the fourth quarter decelerated to 8% from 28%in the third quarter. Compared with the previous quarter, the number of deals fell by 2.4% together with the decrease in supply. Nevertheless, the real estate market, as well as the issuance of housingloans, should continue to grow in 2013 at a moderate pace.In the last quarter, apartment prices in Vilnius contracted on an annual basis for the first time in twoyears and were 4.7% lower than a year ago. The number of deals continued its double-digit growth, asin a year it increased by 11.5%--the fastest growth amongst the Baltic capitals. The higher activitymight be related to the increased supply. High supply compared with still moderate demand probablycaused the decrease in prices as well. The number of completed apartments in Vilnius city in 2012reached 1,905 - the highest number since 2010 and 2.2 times higher than in 2011. Household borrow-ing continued to fall throughout 2012. However, we think that borrowing should increase this year aseconomic sentiment recovers and real wages start increasing; this should allow prices to staystable.
Apartment prices, EUR/m2
1,127 EUR1,657 EUR786 EUR1,541 EUR1,069 EUR1,671 EUR6007008009001,0001,1001,2001,3001,4001,5001,6001,7001,80020052006200720082009201020112012TallinnRigaVilniusSources: Lithuanian Centre of Registers, Latvian State Land Service and National Real EstateCadastre, Estonian Land Board and Swedbank.
Interest rates on mortgages
Interest rates decreased on a quarterlybasis in all three countries except Latvia, where they remainedunchanged at 3.4%. In Estonia, they declined by 13 basis points to 2.8%, and in Lithuania by 32 basispoints to 2.7%. Mortgage interest rates in Estonia decreased by a similar amount as the euro inter-
Housing Affordability Index for Baltics 14 March, 2013
bank offered rate (EURIBOR). The three-month EURIBOR fell from 0.4 in the third quarter to 0.2% inthe fourth quarter in 2012. In Lithuania, interest rates decreased more than interbank interest rates,meaning that high liquidity in the market probably led to lower margins.Interest rate differentials in the fourth quarter were the main reason why apartments were more af-fordable in Tallinn than in Riga. This is because the ratio of wages to apartment prices is similar inboth cities. Wages in Vilnius were the lowest in relation to apartment prices in the Baltic countries, al-though during the fourth quarter the ratio also improved the most.
Annual percentage rate of charge for new mortgages to households
2.81%6.5%3.36%7.8%2.71%6.4%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%20052006200720082009201020112012EstoniaLatviaLithuaniaSources: National central banks and ECB.
Average net wages
From the third to the last quarter of 2012, average net wages of households increased by 5.9% in Tal-linn, 3% in Vilnius, and 2.3% in Riga. In an annual comparison, wages rose the most in Tallinn, wheregrowth reached 4.8% and net wages earned by an average household were EUR1,241 in the fourthquarter. In Riga, net wages increased by 3.4% to EUR 847, and, in Vilnius, by 2.8% to EUR 864.The difference in affordability between Tallinn and Vilnius is mostly dependent on wage differences. InTallinn, households earned 44% more than in Vilnius, while apartment prices in the Estonian capitalwere only 5% higher in the fourth quarter of last year. Housing in Riga is also considerably more af-fordable than in Vilnius, as Vilnius households earn only 2% more than their counterparts in Riga butpay 36% more in apartment prices.
Average net wage, EUR
82756557625030035040045050055060065070075080085020052006200720082009201020112012TallinnRigaVilniusSources: National statistical departments.
The HAI value of 171.8 in Tallinn means that household net wages in this city are 71.8% higher thanrequired to afford an apartment, according to our norm (mortgage costs account for 30% of net wagesof a household that earns 1.5 of the average net wage). In Riga, meanwhile, household net wages are56.7% higher, and in Vilnius 27.8% higher, than required to fulfil this norm. In the fourth quarter, mort-

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