An increasing number of people are coming to this blog via google, searching for "Latvian housing crisis" or something like that.
I would not call it a crisis (not yet, though it could become one in the future) but here is the current situation. After rising more than 60% in year until April 2007, the Latvian housing prices have dropped 8% since then. The number of "For rent" ads has been steadily increasing, as sellers choose to wait and rent out the apartments instead.
Diena newspaper has two blogs: one by a journalist who is trying to sell his apartment and another by a person who is trying to rent a place. Both of them are having difficulties. If we believe the blog comments, the rental apartments get rented out quickly, often for a price roughly equal to a mortgage payment when buying a similar place at the current prices. So, there are people who could make the mortgage payments... but they chose to wait with buying or (most likely) don't qualify for mortgage under the new stricter bank requirements.
Banks have been a big part of both rise and fall in the housing prices. Since April, the amount of money issued in new mortgages has declined. By now, managers of all 4 biggest Nordic owned banks have admitted that they are deliberately cutting back on new loans, because of the concerns about severe overheating in the Latvian economy. Hansabanka (owned by Swedbank) who is by far the biggest lender in Latvia has cut back the most.
There are claims that the smaller locally owned banks are expanding their lending and giving loans to people who are turned down by big banks. I have no data on that but the press releases from Latvian association of banks show decline in total lending by all banks combined. So, even if smaller banks are increasing their lending, the increase is not big enough to compensate for cutbanks by Hansabanka etc. And if this happens to be a mirror image of what happened before the prices peaked. It was the local banks who had the stricter standards then, while Hansabanka&Co were increasing their market share with easier loans.
I've been wondering for a while if cheaper credits from abroad would somehow find their way into Latvian credit market, defeating the cutbacks by Hansabanka&Co. This has not happened on a large scale yet and, given the overall situation in world financial markets, is becoming less and less likely.