Latvia may be having a housing bubble and the prices have started dropping slightly (4% in the last two months). How far could they drop?
First, Latvia has a lot of people who would want a bigger apartment. According to this study by the Bank of Latvia, the levels of apartment space per person in Riga are lower than in both Tallinn and Vilnius. And even if the present construction boom continues at the current rate, it will take 8.6 years to reach the current level of Tallinn.
The problem is the prices that people are willing to pay. According to the same study, the price of 1m2 in Riga is 3.5 times the average monthly salary. That is more than in any other European country for which they have data. (The next most expensive country is Spain, with 1m2=3 times the monthly salary.) They also counted the number of people who need a bigger place and are able to qualify the loan at the present prices. The conclusion? If not for people who are buying property for investment or to rent it out, Latvia would have run out of mortgage applicants in 6 months after the study. (Maybe slightly more, if one includes people with "unofficial" incomes which are not declared to tax service, but not much more.)
The other key variable is the credit availability. As I wrote, the home loans are mostly funded by money borrowed from abroad and Latvian banks have been borrowing abroad a lot. The continued willingness of foreign banks to lend ever-larger amounts is questionable. I suspect this is, actually, the most important constraint.
About 50% of loans are funded by local savings. The remaining 50% are borrowed from abroad. If the inflows of credits from abroad decrease by 25-50%, that means that the amount of money available for credits decreases by 12.5-25% of what it was at the peak of the lending boom.
In the first approximation, I would guess 12.5-25% decrease in prices based on that. It may be less because some people would withdraw their apartment from sale, instead of selling them for less. On the other hand, the new housing projects are being finished now and when they are ready, the number of apartments will increase and this will press the prices of existing apartments down. (This is already happening in Estonia.)
This is all my guesswork. (Do not regard this as an investment advice!) I'd love to hear what other people think.