Housing prices in Europe have undergone significant fluctuations in recent years, and the latest European Union (EU) Housing Price Index data show that in the fourth quarter of 2024, housing prices in the EU increased by 4.9 %compared to the same period a year ago. In the Baltic States, prices continue to rise faster than the EU average, which creates additional challenges for residents in the purchase of housing, says Kaspars Lukačov, Luminor’s Lender Lending Manager in the Baltics.
In recent years, EU housing prices have been subject to significant fluctuations – their rise has reached the highest point in the first quarter of 2022, but in 2023 decreased to negative figures this year. According to the Central Statistical Bureau data (CSB) in Latvia, housing prices increased by about 8.1%over the year, which is a stimulating factor for market activity, although the biggest incentive for home purchase is caused by the gradual reduction of EURIBOR interest rates.
In the last quarter of 2024, the amount of housing loans issued by Luminor in Latvia has doubled compared to the year earlier. Housing lending demand was unexpectedly active in January this year, according to the real estate industry, but overall the number of housing transactions in Latvia remains stable. The first months of this year indicate that the growth is visible in the new housing segment. At the same time, every fourth transaction in the purchase of housing or construction with the bank was in the regions.
The real estate market is recovering – but do homes become more accessible?
From the year 2010 to the third quarter of last year, housing prices in the EU increased by 54%, while rent increased by 26%. In the Baltic States, prices are particularly pronounced – with housing prices in Latvia increased by 154%over fifteen years, 181%in Lithuania and even 230%in Estonia. Rents have risen more moderately during this time, but also significantly – rental prices in Latvia have risen by 60%. However, compared to other Baltic States, Latvia is still standing out for its best apartment availability in the Baltics. The average price for apartments in new projects in Latvia is 2500-2700 euros per square meter, while in Estonia and Lithuania this price is approximately EUR 3,500-4000 per square meter.
For example, in 2023, the average home loan was 80 to 90 thousand, then this year bank data show that the average loan amount has slightly exceeded 100,000 euros. This is due to the increase in transactions in the segment of new apartments, which have been facilitated by factors such as the significantly lower EURIBOR rate and the average wage increase in 2024 before taxes increased by 9.7 %in Latvia. Although the price -income ratio has increased relatively evenly, this increase is slower than the rise in the price index of the housing. The State Land Service data for the first half of 2024 shows that the price of one square meter in Riga, built before 2000, is an average of EUR 1335.5 per square meter, while apartments built after 2000 the average price per square meter is 2616 euros. Even with salaries, housing does not become more accessible. Given this trend and the growing demand for housing in new or renovated projects, housing prices will continue to rise.
The biggest challenge is still the first deposit
One of the biggest challenges for the purchase of housing for the residents of Latvia is the first deposit and savings. Based on the Luminor survey conducted in March, 32% of the Latvian population’s main obstacle to buying a home is high real estate prices. 22%, on the other hand, said that the down payment could be difficult.
The first installment of a home usually accounts for 15-20% of the purchase price of the property. Young families have access to the ALTUM warranty, which allows to reduce the first deposit of up to 5% of the total loan amount. For families with children, Altum support is 5-55% of the loan depending on the number of children in the family, the location of the property and the energy efficiency. Bank customer observations indicate that the first deposit requires an average of 5 years to sacrifice the amount of money.
