In August, Latvian banks added 78.182 million lats to their home loan portfolio. In contrast, they issued about 170 million lats of new loans per month in the beginning of this year.As I argued in one of my previous posts, the Latvian housing boom has been largely fueled by readily available credit. In the past few years, the Latvian banks were increasing their home loan portfolios agressively, by 80% a year. Easier credits enabled people to pay larger amounts for apartments and houses, increasing housing prices by 60% a year.
Now, this process may have come to end. Judging the by graph above, a very abrupt end, with banks issuing only half as many loans as they used to a few months ago. (And, according to Latio, the former market leaders, SEB and Hansabanka are issuing 5-10 times less home loans than they used to.) There's less credit available and, if the trend persists, people will be unable to buy apartments and houses at the current prices. Sellers will be unable to sell and may have to postpone the sale or sell for less.
The decline in available credit has been much more abrupt than I thought. (And, given the subcrime credit scare in US and its impact of the world financial market, it may get even worse.) The impact of that on the Latvian housing prices and broader Latvian economy remains to be seen. Developing...
1 comment:
Hi LA.
Just to let you know that I am still enjoying reading the blog. This post is important I think, and yes the slowdown has been very dramatic.
Eventually this will feed through to house prices. It is hard to say how long it needs.
The big news last week was definitely the inflation news, and especially in Bulgaria, which has sudenly surged forward. This is now unsustainable all over the place, and I would expect developments in the not too distant future. Maybe over xmas, when the banks are closed quite a bit, and the financial markets are more sleepy.
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