Some people say that the housing prices in Latvia will only keep rising, since the average living conditions are worse than in Western Europe and there are so many people who would like a bigger apartment or house. True, but... the apartment purchases are typically financed by credits from banks and those credits are often financed by Latvian banks borrowing from abroad.
There are two possible events that could decrease the availability of credit (thus bringing down the housing prices):
- Increase in the interest rates;
- Stricter lending standards.
Over the last months, there has been an increasing number of warning signs about Latvian economy. Articles in Latvian and international press, statements by Bank of Latvia. I suspect banks have reacted to that by pursuing more cautious credit policy. Latvian government is also trying to push banks in the same direction, by introducing stricter regulations on credit.
The last two months (May and June) have seen the first declines in housing prices, by 1% and 3.5%. A new report by Latio real estate company says that the number of housing sales has declined 15% in May (compared to April), due to lack of buyers who are willing/able to pay the requested prices. Some sellers are lowering prices, others are waiting.
The real estate companies say that 10-15% drop in prices is possible but they don't expect more than that. Developing...