The real estate market is heating up: the Bank of Lithuania has no red lights, but there are signs of concern

Signs of anxiety are on the rise

In March, 3,3 thousand were sold throughout the country. apartments, which is 56 percent. more than in 2020 at the same time.

With prices and sales skyrocketing, Sigismund Mauricas, chief economist at Luminor Bank, told Delfi Theme that there were growing signs of concern in the market.

“Activity in the real estate markets has increased not only in Lithuania, but practically all over the world.

As an example, Eurostat announced that in the fourth quarter of last year. House prices have risen in all European Union (EU) countries, even though some of them are going through a very deep recession and are not even visible at the end of the tunnel.

This is a paradox, we have a crisis, but instead of seeing the property market shrink, we see the opposite situation: the number of real estate transactions is breaking records in many countries, including Lithuania, and prices are rising. “he said.

The economist explained that the reasons for this increase are also clear: people spend more time at home, see their shortcomings, and therefore seek to improve their lives.

“The number of deposits has also increased both in Lithuania and in the EU. This caused an unprecedented reaction to the crisis, as the real estate market reacted more sharply to the crisis, fell more strongly and now there was no decline at all. This raises questions about whether it is sustainable, “he said.

Speaking of the real estate market Ž. Maurice said there are hot spots, but overall the risk is much lower than in 2008.

“Perhaps there is a certain threat, in terms of the general situation in Lithuania, that the number of investment transactions is increasing.

People who have accumulated money buy a second or third home, but again, I associate it with the great love of Lithuanians.

This is where the low risk may be due to a large cash flow being placed in the same basket, in real estate. I mean, if the economy is growing, everything is fine, and if even those people need funds and decide to sell real estate, then real estate volatility can increase, ”he said.

LB: It is too early to say that this is unsustainable growth

Jokūbas Markevičius, Director of the Financial Stability Department of the Bank of Lithuania, also assured in the program that the pandemic had a strong impact on the housing market in 2020, and we are seeing the continued impact even now.

“In fact, despite rising unemployment, population income growth has accelerated to around 10% and expenditures have fallen. Savings have increased.

But when we look at the number of real estate transactions, I wouldn’t say that there are unsustainable records here. During 2020 fewer transactions were made than in 2019. “”, He said, but stood out in March 2021.

“There was some influx of sales in March, but I would not be in a hurry to draw general conclusions especially after a month, especially since the transaction boom does not mean that prices are rising strongly at the same time.

In recent years, property prices in Lithuania have increased by 6 to 7 percent, while wages by 10 percent. and more. 2020 In the last quarter, prices increased slightly and already grew 9.5 percent, which is more than usual, but it is too early to say that growth here will accelerate more and more, ”said a specialist from LB.

Although he agreed that house prices have been growing faster than usual recently, according to J. Markevičius, we cannot say that they have risen by tens of percent.

“Perhaps we are talking about individual projects here, where perhaps the price was not set as precisely at the initial stage, and has now caught up with its level,” he added.

According to J. Markevičius, in terms of market threats, LB does not plan to interfere with its regulation or “cooling” yet.

“We do not see the need to turn on a red light, but the activity that is now visible, we are watching closely, because when there is a lot of activity, good expectations, more and more people emerge, and when people can buy it, always there are hidden risks.

But again, now, unlike a decade ago, today, mortgage credit does not contribute as much to the growth of price levels or to the number of transactions. A home loan that could substantially inflate that bubble and create excess purchasing power is very consistent so far, albeit accelerated, “he said.

Do not expect a drop in prices

When asked what the situation seen in the real estate market today could be called, the LB representative assured that it was more of a revival in demand.

“It’s both the added need and the added money that allows people to advance future demand as they save, because they can simply save earlier on the initial contribution.

But on the supply side, there may be some congestion at the moment, as some developers postponed their plans at the start of the pandemic and barely offered new homes last summer, but then resumed the supply of apartments after the quarantine eased. .

The supply does not tend to decrease. Even if there is a short-term deficiency now, it doesn’t appear that the deficiency is long-term, ”he said.

According to J. Markevičius, when it comes to prices, LB is currently monitoring that they are balanced.

“Prices in Lithuania are now somewhere in the balance, as they should be, we don’t really see overheating,” said the specialist, but cautioned that prices should not be expected to fall.

“Prices are falling, it never happens unless we have a serious crisis. <...> prices are constantly increasing every year and it is not worth expecting a very drastic decrease ”, added J. Markevičius.