In the third quarter, compared with the same quarter last year, housing affordability increased substantially in Riga; in Vilnius, the increase was less pronounced, while in Tallinn it, on the contrary, decreased.
A decrease in interest rates supported affordability in all the Baltics last quarter. In Tallinn, a dip in affordability was the result of rapid price growth exceeding wage growth. In Riga, strong affordability gains were driven by wage growth significantly surpassing the average price increase. Meanwhile, in Vilnius, lower interest rates were enough to ensure stronger affordability even though prices grew faster than incomes.
Low interest rates are expected to support affordability in the coming quarters. Apartment price growth is likely to outpace wage growth in the near future, reducing affordability in Tallinn and Vilnius. Future affordability is unclear in Riga – wage growth will somewhat decelerate, albeit remain strong, while rising construction costs, coupled with elevated demand, will continue to pose upward pressure on the average price.
