Rising house prices will push some residents to make unpleasant decisions: How long will this continue?

Both new and old homes are getting more and more expensive

Raimondas Reginis, Head of Market Research for the Baltic States at Ober-Haus, commented on the Monetary Affairs program that, according to data from the first quarter of this year, house prices in Lithuania have already risen by 11-12 %. According to data from Ober-Haus in May, the growth of house prices among large cities varies from 10 to 15 percent: in Vilnius – 11.6 percent, and higher growth in smaller cities – in Šiauliai, Panevėžys.

“The growth in prices for new construction apartments is a little faster. We are seeing new construction projects that start with significantly higher prices and people are buying, reserving this type of housing, even more expensive. Increasing prices for older construction apartments is a bit more modest, but it is also very fast.

Until this year, if we talk about an apartment in Vilnius, an average of 100 thousand. euros. This year it is likely to be an average of 120,000. euros. Prices are very different in Vilnius, Kaunas and Klaipeda. The offer is very wide: even in Vilnius itself, the cheapest housing can cost just over 1000 euros per square meter. Meters can cost already 5-6 thousand. per square meter, ”said R. Reginis.

Why are prices rising? According to the analyst, this is mainly due to the economic recovery.

“The Bank of Lithuania forecasts that this year the economy will recover by 5%, which is a huge jump in the economy.

The second is really attractive financing conditions. I looked at the latest data for April, which is the highest number of loans issued in the last 13 years: in March and April more than 170 thousand loans were issued. new home loans. That is a record amount. And even the interest tends to fall. Therefore, the conditions are still very attractive.

And the third factor is very important: expectations. Resident expectations have risen so much that we probably won’t find anyone saying that house prices will stop rising or that prices will start falling in the near future. Everyone just expects growth, “said the analyst.

Sigismund Mauricas, Luminor’s chief economist, added that the popularity of telecommuting had also contributed: As people spent more time at home, they began looking for more spacious and comfortable homes.

“The first wave, especially in the summer and fall of last year, was caused mainly by that personal need to improve the quality of housing. Those people who could afford it did.

The next wave came when we saw this winter, in the spring, that the crisis was almost over and the expected drop in house prices was not there. And it probably won’t. There was such psychological impetus to buy a home in the here and now, because most of the people who were waiting for the crisis didn’t get it anyway. Third, a good fundamental economic performance. The first positive surprise was that the Lithuanian economy fell significantly less in the spring than the EU average. The second surprise is even greater, that even in winter, even with a sufficiently long and strict quarantine, the Lithuanian economy even managed to grow a little. If we even grew during the quarantine, then what will happen in the next few quarters, when there will be no quarantine ”, the economist was surprised.

Housing will become more expensive than wages will rise

Ž. Maurice must have to see that prices rise more slowly than wages, but this will not be the case this year. He recalled that in the past, the affordability of our home was not good compared to Western Europe.

“Such a standard was that the salary of five years should be enough to buy a house. Let’s calculate this, if the average salary is almost 1000 euros in Lithuania, then in 5 years 60 thousand. EUR should cost housing, and in Vilnius It already costs 100-120 thousand euros, which means that it is twice as expensive as a home would have historically cost.

Advertising prices may not be a very reliable indicator, but a preliminary indicator that prices there have increased by 20 to 25 percent. If buyers at the prices shown in the ads buy that home, then we can see a sufficiently exotic price increase, perhaps even 15 percent. or higher this year.

Anything can be, just a reminder that in Sweden annual house price growth is currently 22%, in the US which is a highly developed market those prices have grown by two digits somewhere. When there was a SARS virus pandemic in Hong Kong, house prices increased by 30 percent. It seems that the scenario is repeating itself: the pandemic comes and goes, the economic stimulus is maintained, the population’s expectations increase and money flows into the real estate market ”Ž. Mauricas.

Reginis also claimed that overall house price growth this year will be twice as fast as wage growth. Currently, wage growth is projected to be between 7 and 8 percent, and average annual home price growth, he said, could certainly reach 15 percent.

“We will definitely see the situation where affordability will decrease this year. But when it comes to specific people, there are specific situations. Not everyone sits in the same boat. Some people’s salaries are growing much faster than the prices of housing or average wages, other people’s wages are no longer increasing or their income level is low enough. For those people, this is really bad news as they will have to buy an inferior, older or more remote home from the city center, or refuse to buy a house and return or continue renting, ”says the analyst.

Signs of cooling are seen on the outside

According to R. Reginis, in any case, a market cooling would benefit everyone.

“It is difficult enough to work in the current situation because the changes are great, the expectations are high and, sometimes, we do not understand where that reality is. Especially for our work when it comes to selling a home or evaluating it. Sometimes appraisers no longer keep up with their asking prices and conflicts arise. If the market gets cold one way or another for some reason, it would be enough, “he adds.

Ž. According to Maurico, any measure taken by the Bank of Lithuania to cool the market may be delayed.

“In the United States, we are seeing the first signs that housing market activity is already declining, even lower than in 2019. As fashion is reaching other countries in the world, we can expect it to arrive in Lithuania in half a year. , similar trends for a year and the market will still cool. There is no need to lose your head and think that if prices go up double digits this year, they will go up next year and next year. I think the chances of a two-digit increase digits next year are low ”, says the economist.

According to the economist, the introduction of a broader property tax would no longer represent a radical change, since it would probably come into force from next year, it would be paid in 2023 and there would be several exceptions.

“If the demand increases, the supply must increase and this should balance the market in the long term, but the supply should not be suburban areas of chaotic growth,” he added, adding that the quality of the homes that were acquired was seriously under threat.

“When everyone tries to run a large crowd of people through a door, a big showdown ensues. The threat of this overheating is quite high, the sustainability of real estate can suffer a lot, the qualitative indicators are no longer so important: people buy everything here and now from drawings, they no longer look at details like environmental infrastructure. Things like soundproofing in homes are taking a back seat, this is one of those threats to the issue of sustainability. (…) This (moving to the suburbs – “Delfi”) will be a great challenge for our cities, especially Kaunas, Klaipeda, Vilnius, Siauliai. It is the sustainable development of the suburbs. You already made many mistakes, it can be such a chaotic development It will be very fast and large, as a result of which we will take mush for many decades ”, said the economist in the program“ Monetary Affairs ”.

Are you buying a house now?

Ž. Maurico’s verdict, if you need a home for yourself, then the best time is to always buy here and now.

“Because you can never guess what the future will be like, you just have to look at the qualitative parameters all the time. Now buy not only the apartment, but also the entire environment, infrastructure. When buying, we have to think about all the steps, how we will live ”, says the economist.

Reginis emphasizes that there are no conditions for prices to drop now.

“You see, that policy of monetary stimulus continues, in 2022-2023.” At least looking at the eurozone forecasts, this inflation will certainly not be high and will not fluctuate enough to possibly reduce that stimulus, so it is likely that we will live in very similar states of mind in the coming years, “said the analyst.