Housing Affordability Index for Baltics • 14 March, 2013
Components of the HAI: apartment prices, interest rates, and wages
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-