"At the start of 2020, the housing market in the Baltics was still unfazed by the pandemic. Overall housing affordability was high in all the capitals. However, housing affordability in Tallinn and Vilnius decreased in the first quarter, compared with the same period of 2019, as apartment price growth outpaced wage growth. In Riga, the housing affordability index (HAI) value increased as wages grew more rapidly than apartment prices," Swedbank said.
"The COVID-19-induced economic shock will affect the housing market negatively, but sustainable growth during the past decade, low leverage and ample money supply mean that the price drop is likely to be modest and short-lived," it predicted.
In Riga, price growth slowed down a bit over the year and reached 5.4%, Swedbank said. This was due to diminishing price growth of the older Soviet-era apartments that still dominate the market. The price growth of the new-project and renovated apartments outside the city centre was 9%. A drop of transactions (mainly secondary market) occurred in April and May, while transactions with new apartments still took place upon the previously made agreements.
The housing market will be affected by the crisis in coming months, though.
"While, in the beginning of the quarantine, purchases were delayed mainly due to imposed restrictions, as well as heightened uncertainty, the deteriorating financial situation and weak consumer confidence means that many households will refrain from buying homes further ahead as well," the bank said.
"Given the severity of the economic shock, some downward correction in real estate prices is expected, although much less severe. Overall, we expect housing prices to fall up to 10% by the end of the year and start growing again in 2021," Swedbank said.
The full report can be read online.