Throughout the bust of Latvian housing bubble, some real estate agencies have been making predictions of the type: "The prices will keep falling for 2-3 more months, for a total of another 3-5%, and then stabilize". Balsts agency may have been the one who made those more than anyone else.
Now, they've made a new prediction. They now expect another half-year of price declines, for a total of up to 10%, and then a price stabilization. As the bust of the housing bubble goes on, there is less and less of expectations that it will stop soon.
Showing posts with label housing bubble. Show all posts
Showing posts with label housing bubble. Show all posts
Friday, June 27, 2008
Real estate bust in Estonia
For a while, I have been looking for numbers on Estonian real estate market, to see the similarities and the differences from Latvia. But the numbers have been hard to find. In Latvia, virtually every major real estate agency releases monthly estimates of the average apartment price in Riga.
For Estonia, either I'm bad at finding such estimates or they are not made public. But, yesterday, I came across an Estonian article in which an investor calculated the averages himself. The result: advertised prices have declined 23% in last 14 months. This is quite similar to Latvian numbers that I reported on this blog.
The big question is how many Eastern European countries will get affected. I talked with a Slovak colleague last week. And what I heard about the market in Bratislava sounded remarkably like Riga before the bubble burst. But, again, it has been difficult to find statistics that are directly comparable to Latvian ones...
For Estonia, either I'm bad at finding such estimates or they are not made public. But, yesterday, I came across an Estonian article in which an investor calculated the averages himself. The result: advertised prices have declined 23% in last 14 months. This is quite similar to Latvian numbers that I reported on this blog.
The big question is how many Eastern European countries will get affected. I talked with a Slovak colleague last week. And what I heard about the market in Bratislava sounded remarkably like Riga before the bubble burst. But, again, it has been difficult to find statistics that are directly comparable to Latvian ones...
Monday, June 02, 2008
May real estate numbers
Arco Real Estate agency reports that the average apartment price in Riga was 1276 Euros/m2 at the end of May. This is:
- 2.6% less than at the end of April 2008;
- 9.2% less than at the end of 2007.
- 21.2% less than at the end of June 2007.
Arco did not release month-by-month numbers for the first half of 2007. But the other real estate agencies (like Latio, whose numbers are now paid-subscription-only) observed a slight drop in May and June 2007, as well. Based on that, we get 23-24% decline compared to peak prices (March-April 2007).
The fall in Latvian real estate prices has been more than anyone, including myself, expected. And it keeps going on...
For me, it's good because I'm still looking for an apartment and there's much more reasonably priced options now. What a difference one year can make...
UPDATE (6/6): Estimates by other real estate companies range from 18% decline year-on-year (Oberhaus) to 27.2% decline (Latio). My impression is that the higher estimates are the more accurate ones.
- 2.6% less than at the end of April 2008;
- 9.2% less than at the end of 2007.
- 21.2% less than at the end of June 2007.
Arco did not release month-by-month numbers for the first half of 2007. But the other real estate agencies (like Latio, whose numbers are now paid-subscription-only) observed a slight drop in May and June 2007, as well. Based on that, we get 23-24% decline compared to peak prices (March-April 2007).
The fall in Latvian real estate prices has been more than anyone, including myself, expected. And it keeps going on...
For me, it's good because I'm still looking for an apartment and there's much more reasonably priced options now. What a difference one year can make...
UPDATE (6/6): Estimates by other real estate companies range from 18% decline year-on-year (Oberhaus) to 27.2% decline (Latio). My impression is that the higher estimates are the more accurate ones.
Monday, April 28, 2008
Signs of real estate crash in Latvia
Latvian real estate prices have been falling for one year by now. Apartments are now cheaper by 20-30%. And, recently, we've seen some new developments:
- Parex Asset Management, one of leading financial companies in Latvia, has established 'Baltic Distressed Property fund'. The fund plans to raise 25 mln euros to buy real estate from owners in financial trouble.
- Edgars Šīns, the head of Latio real estate, predicts possible foreclosures for 40,000 households. That's 20% of all households with mortgages. Only 17% households in Latvia have mortgages, so, that would be 3.4% of all households - but that is still a big numbers. Šīns has called for a massive government intervention to prevent a possible collapse in real estate.
The government thinks Šīns is exaggerating the situation. In any case, a government bailout could be very unpopular with general Latvian public. (Since only the wealthiest 17% have mortages in Latvia, the remaining 83% might not like their money going into a bailout of people who are richer than them. Or even a bailout of people who used to be richer than them before the real estate started falling.) Others are questioning Šīns math as well and it's plausible he has inflated the number of possible bankrupcies by a factor of 2 or 3.
Thursday, April 03, 2008
Financial Times article on Latvia
A commenter on my previous post points to a Financial Times article on Latvian housing market (which does a good job surveying the situation) and asks me to comment on this:
There's no sign of large scale problems with Latvian mortgages at the moment, but Hansabanka's claim why problems should not happen looks flawed to me.
Consequently property prices have fallen by a quarter since last spring but asset quality remains good because only 17 per cent of households – typically the wealthiest – have mortgages, according to Hansabanka.I think Hansabanka's argument is flawed. What matters is the ratio between the mortgages and the income. Latvia's mortgage debt-to-GDP ratio is around 34%. Combine that with only 17% of households having mortgages and what you get is 17% of households having quite a lot of debt compared to their incomes. Even if those are mostly the wealthiest 17% of people.
There's no sign of large scale problems with Latvian mortgages at the moment, but Hansabanka's claim why problems should not happen looks flawed to me.
Monday, March 31, 2008
Real estate - April 1st edition
To those who read in Latvian, this collection of real estate ads may be quite hilarious.
Thursday, February 14, 2008
Signs of economic slowdown in Latvia
In two news stories, one next to another in the economy section of delfi.lv. First, today's "Dienas Bizness" reports that several Latvian manufacturers of concrete are approaching bankcrupcy. As the Latvian housing bubble is bursting, some of the new construction projects are being cancelled. The price of concrete has dropped 15-20% and many manufacturers are struggling to stay alive.
The second story reports increasing lines for milk in farmers' markets. With food price inflation running at 24.8%/year, people are turning to market as a cheaper alternative to grocery stores. I have been hearing that from friends for a couple of months and now it's making the news stories, as well.
The slowdown will probably get worse before it gets better. Developing...
The second story reports increasing lines for milk in farmers' markets. With food price inflation running at 24.8%/year, people are turning to market as a cheaper alternative to grocery stores. I have been hearing that from friends for a couple of months and now it's making the news stories, as well.
The slowdown will probably get worse before it gets better. Developing...
Tuesday, February 05, 2008
January real estate numbers
According to various Latvian real estate companies, the apartment prices in Riga declined another 2% in January. The overall decline, compared to peak prices in April 2006 is now between 12% and 20%, depending on which real estate company you choose to believe. (My anecdotal evidence, from my own ongoing apartment search, is that 20% may be the more accurate estimate.)
The decline has been substantially bigger than anyone expected and does not show signs of stopping. Some real estate companies predict that it will stop in about two months but they were making the same prediction 3 months ago...
The decline has been substantially bigger than anyone expected and does not show signs of stopping. Some real estate companies predict that it will stop in about two months but they were making the same prediction 3 months ago...
Friday, January 04, 2008
Will the end of housing bubble be good for Latvia?
A commenter on my previous post writes:
Am I the only one who thinks that a slowdown in the Riga housing market will be beneficial to the economy? I purchased a flat in Riga 2 years ago and had to wait for 3 months to find builders for a minor job... Flipping apartments for a living had become a desirable aspiration.I agree with that. Basing the economy on housing speculation funded by loans from Scandinavian banks is clearly unsustainable. Hopefully, when this is over, Latvia will have both more affordable housing and a healthier economy.
Surely the future of the Latvian economy lies in its ability to compete in the knowledge economy, for instance as a Baltic hub or as a EU springboard to Russia, not to channel a entire generation of young Latvians into quick-buck speculation!
Thursday, January 03, 2008
December real estate numbers
According to Latio, the average Riga apartment price in December 2007 was 1415 Euros/m2. This was 2.1% less than in November 200 and 17.8% less than in April 2007 (when the prices peaked). Compared to December 2006, the prices have declined by 7.3%.
So, Riga real estate is firmly on the downward trend. If 7.3% or 17.8% looks like a big decline, one should remember that it comes after a much bigger multi-year rise in apartment prices, to the degree that they became unaffordable to most Latvians.
For example, from December 2005 to December 2006, also according to Latio, the apartment prices increased by 69% (in one year!). Even combined with this year's decline in prices, we still have a 57% increase from December 2005 to December 2007, which is a lot.
So, Riga real estate is firmly on the downward trend. If 7.3% or 17.8% looks like a big decline, one should remember that it comes after a much bigger multi-year rise in apartment prices, to the degree that they became unaffordable to most Latvians.
For example, from December 2005 to December 2006, also according to Latio, the apartment prices increased by 69% (in one year!). Even combined with this year's decline in prices, we still have a 57% increase from December 2005 to December 2007, which is a lot.
Monday, December 03, 2007
November real estate numbers
This is the monthly update on how the Latvian housing bubble is deflating. According to Latio real estate agency, the average apartment price in Riga in November 2007 was 1445 Euros/m2 which is:
The companies have different opinions on where it is going. Balsts and a few other realtors say that the rental prices are going up, because more people are renting instead of buying. That would make buying and then renting out profitable, thus stopping the fall in prices. Latio monthly report is skeptical about this argument.
- 3% less than in October 2007;
- 16% less than in April 2007 (when the prices peaked);
- 1.6% less than in November 2006 (this is the first month when we have a year-on-year decrease in prices).
The companies have different opinions on where it is going. Balsts and a few other realtors say that the rental prices are going up, because more people are renting instead of buying. That would make buying and then renting out profitable, thus stopping the fall in prices. Latio monthly report is skeptical about this argument.
Sunday, November 25, 2007
Economic news from Slovenia
Global Voices Online links to two stories about Slovenian economy:
- 70,000 Slovenians protest in Ljubljana, demanding higher wages, to compensate for rising inflation;
- The apartment prices in Slovenia have been rapidly rising (here are up-to-date numbers).
Housing bubble and rising inflation is a familiar picture to Latvians and many other countries in Eastern and Central Europe, as documented by Eastern European Economy Watch or some of my own posts.
Slovenia, however, was supposed to be the success story, immune from the overheating trends seen elsewhere. Their economic fundamentals are still quite good. But this reminds me that Latvian economy was viewed as the Eastern European success story just two years ago. ("Safe investment opportunity with 7-8%/year growth".) Too large amounts of foreign money pouring into a country in too short time can create economic bubbles quickly.
- 70,000 Slovenians protest in Ljubljana, demanding higher wages, to compensate for rising inflation;
- The apartment prices in Slovenia have been rapidly rising (here are up-to-date numbers).
Housing bubble and rising inflation is a familiar picture to Latvians and many other countries in Eastern and Central Europe, as documented by Eastern European Economy Watch or some of my own posts.
Slovenia, however, was supposed to be the success story, immune from the overheating trends seen elsewhere. Their economic fundamentals are still quite good. But this reminds me that Latvian economy was viewed as the Eastern European success story just two years ago. ("Safe investment opportunity with 7-8%/year growth".) Too large amounts of foreign money pouring into a country in too short time can create economic bubbles quickly.
Wednesday, November 07, 2007
Latvia, Estonia, real estate
Estonian blogger Davix has some interesting graphs on apartment prices in Tallinn, Estonia. The overall trend is the same as in Latvia: the prices peaked in Spring and are now slightly more than 10% off the peak prices.
The trend did not surprise me, but the numbers did. From the graph, the October price looks around 1490 Euros/m2 which is the same as Latio's estimate for Riga, except that... Latio's numbers is average of old (Soviet era) apartments while Davix averages Soviet era apartments and (more expensive) new construction.
So, if one did apples-to-apples comparison (which I can't do because I don't have Estonian statistics separated by time of construction), Tallinn apartments will probably be about 20% cheaper than Riga. At the same time, Latvian salaries are 25% below the Estonian ones.
And Estonians are still complaining about the housing bubble. If they have a bubble, Latvia has a mega-bubble!
The trend did not surprise me, but the numbers did. From the graph, the October price looks around 1490 Euros/m2 which is the same as Latio's estimate for Riga, except that... Latio's numbers is average of old (Soviet era) apartments while Davix averages Soviet era apartments and (more expensive) new construction.
So, if one did apples-to-apples comparison (which I can't do because I don't have Estonian statistics separated by time of construction), Tallinn apartments will probably be about 20% cheaper than Riga. At the same time, Latvian salaries are 25% below the Estonian ones.
And Estonians are still complaining about the housing bubble. If they have a bubble, Latvia has a mega-bubble!
Thursday, November 01, 2007
October real estate numbers
The Latvian real estate bubble kept deflating in October, with apartment prices down another 2%, to 1490 Euros/m2, according to Latio real estate agency. The prices are now 13.5% below the peak of 1720 Euros/m2 reached in April. However, they are still 6% higher than one year ago (October 2006).
The new construction is slowing down and only one new project in Riga has been announced in September. Other real estate agencies report similar trends.
The new construction is slowing down and only one new project in Riga has been announced in September. Other real estate agencies report similar trends.
Monday, October 29, 2007
September Latvian credit market numbers
The numbers on Latvian home loans for September 2007 have been published and they confirm the trend observed in my previous post. In September, Latvian banks issued 64.9 mln lats of new home loans, 19.5% less than in August and less than a half of what the monthly amount used to be up to June 2007 (140-170 mln lats per month):
People in real estate business are already complaining and referring to government's anti-inflation plan as "home construction industry destruction plan". I think the decrease is mainly due to management decisions by Latvian banks (which must be under a strong pressure to decrease lending, after all the negative information about Latvia in international financial press) rather than the anti-inflation plan. But decreasing the amount of new loans by a half can be devastating to the construction industry, no matter what the causes of this decrease are.
Also, if the trend continues, expect a strong slowdown in the rest of Latvian economy. Decreasing the available credit this quickly, by so much, has to have a strong impact. A substantial fall in home prices (beyond the 14% decline that has already occured) and an impact on a lot of other things, as well.
People in real estate business are already complaining and referring to government's anti-inflation plan as "home construction industry destruction plan". I think the decrease is mainly due to management decisions by Latvian banks (which must be under a strong pressure to decrease lending, after all the negative information about Latvia in international financial press) rather than the anti-inflation plan. But decreasing the amount of new loans by a half can be devastating to the construction industry, no matter what the causes of this decrease are.Also, if the trend continues, expect a strong slowdown in the rest of Latvian economy. Decreasing the available credit this quickly, by so much, has to have a strong impact. A substantial fall in home prices (beyond the 14% decline that has already occured) and an impact on a lot of other things, as well.
Monday, October 22, 2007
The end of the Eastern European housing bubble?
The Latvian housing bubble has been one of the main topics on this blog recently. By now, the bubble seems to be over. The apartment prices have declined 14% in last half year and are still falling.
According to Irish Independent, the same thing has happened in most of Eastern Europe. Latvia, Estonia, Lithuania, Poland, Hungary, Bulgaria... all those countries have their housing prices falling. And some Irish investors are having problems because of that...
According to Irish Independent, the same thing has happened in most of Eastern Europe. Latvia, Estonia, Lithuania, Poland, Hungary, Bulgaria... all those countries have their housing prices falling. And some Irish investors are having problems because of that...
Thursday, October 11, 2007
Bank of Latvia is becoming worried...
about the state of the credit market. As I wrote a few days ago, Latvian banks have cut the amount of home loans that they issue by a half in last few months.
The chairman of Bank of Latvia, Ilmars Rimsevics, just said the following:
The chairman of Bank of Latvia, Ilmars Rimsevics, just said the following:
- Bank of Latvia is watching the slowdown in new credits;
- If the slowdown is too fast, it may damage the Latvian economy;
- In that case, Bank of Latvia may consider relaxing the restrictions on new lending.
Saturday, October 06, 2007
August credit market numbers
Beside housing prices, I have been following another housing related statistic: increase in home loans issued by Latvian banks. Over the last two months, the change has been quite dramatic:
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...
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...
Thursday, September 27, 2007
September real estate numbers
The Latvian real estate bubble continues deflating. Balsts real estate company estimates that the average Soviet-era apartment price in Riga is now 1557 euros/m2, 2% less than in August. Combined with 12% decline in previous 4 months, this means that the prices are 14% off the peak level achieved in April. The real estate speculation is now moving on to Bulgaria and other countries in Southeastern Europe. (Even Latvian real estate portals are advertizing properties in Bulgaria a lot.)
However, the prices are still up 2% compared to January 2007, up 20% compared to August 2006 and up 90% compared to August 2005. The real estate prices were growing extremely fast for the last few years and, in comparison to that, the current decline has been quite slow.
There is a potential for further price declines. The prices for newly built apartments in Riga are substantially higher than in other Baltic capitals or even Latvian towns at just 20km distance from Riga. The most likely explanation is that much of new construction in Riga has been priced according to what buyers would pay at the peak of the bubble (rather than the actual construction costs). I suspect some of new construction prices includes profits of 20% or so.
As buyers and banks become more cautious, the developers may end up settling for smaller profits and lowering the prices. Having newer apartments at lower prices would then bring down the prices for older apartments as well...
Developing...
However, the prices are still up 2% compared to January 2007, up 20% compared to August 2006 and up 90% compared to August 2005. The real estate prices were growing extremely fast for the last few years and, in comparison to that, the current decline has been quite slow.
There is a potential for further price declines. The prices for newly built apartments in Riga are substantially higher than in other Baltic capitals or even Latvian towns at just 20km distance from Riga. The most likely explanation is that much of new construction in Riga has been priced according to what buyers would pay at the peak of the bubble (rather than the actual construction costs). I suspect some of new construction prices includes profits of 20% or so.
As buyers and banks become more cautious, the developers may end up settling for smaller profits and lowering the prices. Having newer apartments at lower prices would then bring down the prices for older apartments as well...
Developing...
Thursday, September 13, 2007
Welcome to Romanian readers
Welcome to all Romanian readers of this blog! Here is the list of all my posts on Latvian housing bubble and here is the list of all my posts on Latvian economy (includes housing bubble posts and other things).
If you know good English-language sources on Romanian housing bubble or Romanian economy in general, let me know. I've heard there are some similarities in what is happening in our countries now. And I'm curious to learn more.
If you know good English-language sources on Romanian housing bubble or Romanian economy in general, let me know. I've heard there are some similarities in what is happening in our countries now. And I'm curious to learn more.
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