Latvia is what Estonia was 2 years ago. I heard that from an Estonian friend who travels to Latvia for work frequently and has had many opportunities to compare the two countries.
Some Estonian politicians try to deny it. When United Nations released its Human Development Index for 1999, Estonia was classified as a "highly developed country" for the first time but Latvia was still in the "medium development" category. That produced some gloating from Estonian politicians (including Toomas Hendrik Ilves?). They proclaimed that this is a sign of fundamental differences between Estonia on one side and Latvia and Lithuania on the other side.
Two years later, in 2001 UN report, Estonia, Latvia and Lithuania were all in "high development" category. And, since then, Latvia's ranking has been the same as Estonia's, with two year delay. (Both countries have been moving up from the bottom of "high development" category towards its middle.)
"Latvia is what Estonia was 2 years ago" is something that one can observe both in statiscal data and rankings and in everyday life. And, now I'm discovering that this pattern also shows up in real estate.
When Soviet Union fall apart, both Estonia and Latvia were quite poor. New construction nearly stopped in both countries. People simply could not afford a new apartment, because of low incomes and lack of bank credit. In Riga, there was not even enough money to finish the construction that was started during the Soviet period and some apartment buildings were standing half-built for 5-7 years.
Meanwhile, the incomes started growing and credit became available. Aparment prices surged up and, in 2002, new construction started picking up again in Estonia (chart on page 14 of this report). Two years later, in 2004, Latvia followed. Since then, the number of new apartments has been growing rapidly in both countries.
Now, I am wondering if "Latvia repeats Estonia" applies to downturns as well. As detailed on Estonian housing bubble blog (in Russian), the housing prices started falling in Estonia at the beginning of this year. The new construction had satured the market of apartments, for people who can afford to buy a place at the present prices. The prices for some Soviet-era apartments have declined by 10% or so. Speculative investors who had earlier signed contracts for not-yet-built apartments now prefer breaking the contract and losing their deposits instead of completing the purchase and getting an apartment which they can't sell. And Estonian banks are making plans for the case if the prices decline by 20% or more.
Since May, the housing prices have been falling in Latvia as well, but by smaller amounts (about 4% so far). A real estate dealer interviewed by Diena newspaper says: "Compared to Estonia, we don't have a panic in Latvia. Sellers rarely allow serious price reductions."
Well, there is that usual delay between events in Estonia and Latvia. Which might be much less than 2 years this time. Developing...