"The residential real estate market in Riga was stable in the second quarter of 2017. The average transaction price grew by 6.4% while activity decreased by 7.8% on an annual basis," the report said.
With wages growing slightly faster at around 8%, affordability improved slightly, though the picture remains quite complex.
"The price growth reflects growing demand, especially for Soviet-era apartments, as well as rising construction costs. The decline in activity mainly stems from fewer transactions with apartments in new projects. In the second quarter, fewer projects in the new project economic segment were finished and released in the market, which partially explains the sluggish activity and suggests that the decline is temporary.
"Recently transactions with land for private construction have been increasing. This signals that some people who would otherwise consider buying an apartment are opting for private houses as new apartment prices rise. However, the outlook is balanced – the many projects in the pipeline will keep the apartment supply sufficient and slightly limit price growth. Demand is improving but lacks vigor, despite positive signals," Swedbank said.
However, consumer intentions to buy or build a house over the next 12 months remained subdued despite increasing readiness for other major purchases, such as cars.
The ECB’s bank lending survey reports that some Latvian banks intend to relax mortgage-lending standards and expect higher demand for mortgage loans in the third quarter. Overall, strong wage growth will persist and interest rates will remain low in the near future, stimulating demand.
The full report, which includes data for Tallinn and Vilnius too, is available HERE.