According to the bank, the power of the population to buy a new home has decreased significantly

“Swedbank” MPI reflects the possibilities of the average household to purchase an apartment of 55 square meters in Riga with the help of a mortgage loan. Taking into account the average interest rate and the housing price, monthly payments for debt payments are calculated and compared with the development of one and a half percent of the average net salary in the relevant city.

On the other hand, Agnese Buceniece, Acting Chief Economist of “Swedbank” explains that the volatility in the housing market in general has been negatively affected by the decrease in housing availability. The number of transactions concluded by “Swedbank” in the fourth quarter of 2022 decreased by less than 9% compared to the same period of 2021.

Data on the resulting purchases show that the price increase for apartments in Riga has decreased slightly – the average price of one square meter is 7.5% higher than a year ago.

“Price growth was significantly faster for housing in newly constructed, relatively new or renovated buildings. At the same time, flat prices in non-energy-efficient series buildings fell with demand in the second half of the year – in the fourth quarter it was about the same as a year ago, Bauceniece says.

“Swedbank” predicts that the European Central Bank (ECB) will continue to raise interest rates until the summer, but not in the second half of the year. ECB’s deposit loan ratio, which also affects the EURIBOR rate, will increase by 0.5 percentage points to 3.5%, which will slightly increase the mortgage interest rates and negatively affect the affordability of housing in the first half of the year.

“Swedbank” expects the average house price to stabilize or drop slightly, taking into account weak demand. The bank says that price dynamics will differ in different segments, so there is currently no reason to expect a price drop in a first-time market, where rules are still dictated by high construction costs.

At the same time, representatives of “Swedbank” indicate that if interest rates and apartment prices remain at the current level, the increase in wages will be enough to improve housing availability by the end of the year.

The bank predicts that the salary increase is expected to be around 8.5 percent this year, which will ease both the labor gap and the minimum wage increase. On the other hand, tension in the financial markets will likely slow the rise in interest rates, which means we are approaching the lowest point of housing availability in Latvia.

Evaluating this year’s trends, “Swedban” representatives state that in the first months of this year, customers’ interest in buying a new home increased by 30 percent compared to the end of last year, but increased by 30 percent compared to the beginning of 2022. , residents’ confidence in their ability to buy a new home fell 17%.

According to survey data conducted by “Swedbank” and research firm SKDS, one in ten people in Latvia plan to buy or build a new home in the next two years, while another 37% want to do so but do not see anything like that at the moment. . an opportunity.

The survey also revealed that 38% of respondents are more interested in improving and beautifying their existing residences.

The Bank concluded that no significant change has been observed in this area in the last three years and the trends remain similar. Those planning to buy or build a new house in the next two years are most likely to look for a detached house (53%), followed by an apartment (15%) in a new project or a series of apartments built in 2018. Soviet period (12%).

Evija Kropa, a specialist at the Institute of Finance “Swedbank”, points out that this year the desire of residents to buy or build a private house has been more pronounced than ever in the history of the work, but the interest in apartments is serial. Apartments built during the Soviet era are dwindling.

“A surprise and new trend that can be observed in the population survey is the desire to buy or build a house in a rural area – this is the choice most frequently mentioned by survey respondents, and almost one in three points indicates this.” Those who plan to buy or build a detached home, mostly in a rural area, justify their choice with increased income, confidence in a stable job, or a general opportunity to relocate the home, Kropa added.

Similar to previous research, “Swedbank” cites stable business (37%), income growth (32%), sufficient official income to qualify for a loan (24), the main factors that positively impact or accelerate home purchase plans this year. %), a property that meets expectations (23%), and belief that it can be a good investment (22%).

Compared to the 2022 survey, the proportion of residents with enough savings to make the first payment fell from 26% to 13%, respectively.

Survey data shows that not being able to afford to buy or build a new home is also the biggest obstacle this year, as housing is so expensive, which was acknowledged by 54% of respondents. Meanwhile, 38% of residents considering buying or building a home say they are significantly impacted by current inflation, as paying monthly bills is already creating tensions. Another 33% could apparently buy a new home, but the current level of property prices does not seem high enough and the plans of 31% have been negatively impacted by rising loan interest rates.

The survey was conducted by the SKDS research center on 1,005 Latvian residents aged 18-75 in February this year.

Swedbank is the largest bank in Latvia in terms of assets.