Housing affordability fell even further; now housing is unaffordable in Vilnius and Tallinn- Interest rates are bogging down recovery
With interest rates continuing to soar, housing affordability fell further. In the second quarter, Tallinn joins Vilnius in the sub-100 index bracket, signalling that housing in two of the three Baltic capital cities is now out of reach for the average household in terms of affordability. While apartments in Riga remain relatively affordable, those targeting newer properties might be in for a disappointment: this segment has slipped into the unaffordable range for the first time since 2014.
In Vilnius and Tallinn, apartment prices increased annually, while Riga was already experiencing a slight decline. A closer look indicates that in both Tallinn and Riga there was a dip in older apartment prices; meanwhile, prices of newer apartments were more resilient. Vilnius price growth is slowing as well, and we therefore might see a minor correction in the Lithuanian capital as well. Market activity in Tallin and Vilnius has declined, while Riga’s transaction counts remain unchanged from the same period last year. The mood is still downbeat, and uncertainty is rife.
Interest rates now are assumed to have reached their peak and will remain at current levels until the second quarter of 2024, when we expect rates to start to decline. Moreover, we expect that net wage growth will continue to outpace price growth in Tallinn and Riga, while Vilnius is about to catch up. This will provide some support for housing affordability. Therefore, we will likely reach the bottom in housing affordability this autumn.
