2018-05-03
The latest survey of the Bank of Lithuania shows changes in the real estate (RE) market, with an increasing number of banks claiming that the housing prices will fall in the year to come.
‘As early as at the beginning of last year, more than half of banks expected housing prices to climb; now, there are almost no such banks and those projecting a drop in the prices have been rising in number. Changes in banks’ expectations provide preconditions for the market to cool off healthily and gradually. For the last few years the RE market in Lithuania was particularly active, the number of transactions hit records, the housing prices climbed rapidly as well; hence, with such trends persisting, we may have had an unwelcome ‘heating’, ‘said Andrius Škarnulis, Head of the Macroprudential Analysis Division of the Financial Stability Department at the Bank of Lithuania.
According to the latest survey, five out of nine surveyed banks in operation in Lithuania expected the prices for new flats to remain unchanged next year. At the beginning of last year nearly all (nine out of ten) banks projected the prices for new flats would rise: seven banks expected moderate price increases (up to 5%), another two believed the prices would rise 5–10%. Presently there is only one bank that expects growth in the prices of new flats; during the survey, it believed that the prices of new flats would soar up to 5%. In the opinion of another three banks, the prices will drop: two banks thought the prices for new flats would drop by up to 5%, while one bank expected a more noticeable drop in their prices (5–10%) over the year to come.
Banks’ expectations are relevant for the RE market since increasingly more residents purchase a house using a loan. Five years ago, less than a third of housing was purchased with a housing loan, while presently this figure has risen to 40%.
According to Mr Škarnulis, a minor cooling in the housing market was observed from the second half of last year. In the first half of 2017 the rate of growth in housing prices was even double-digit, at 10.2%, whereas with a moderation in the growth rate in the second half the growth of 6.9% was recorded at the year-end.
More than half of the surveyed reported they were currently noticing some imbalances in the domestic housing market: the supply exceeded the demand or the prices did not meet the supply. Banks saw no imbalances in the commercial real estate market.
In the near future the Bank of Lithuania will publish a review of the survey with bank lending trends and plans.