Analytics, Banks, Latvia, Real Estate

In the first quarter of 2017, HAI in Riga was 171.2, which means that household income was by 71.2% higher than needed for a housing loan that costs no more than 30% of the family's net income. The HAI is calculated for a family whose income is equal to 1.5 of average net wages with an average-sized apartment of 55 square meters. In a year HAI has improved by five points.

The bank said that a steep growth of average housing prices was compensated by a steeper growth of net wages (by 6.3%), and a considerable drop in interest rates on mortgage loans (by 61 base points).

Swedbank junior economist Linda Vildava said that this year has started with a steeper economic growth, faster drop in unemployment and steeper rise in income, ensuring favorable conditions for purchase of housing. Consumer sentiment is also improving. Activity is still moderate, the number of transactions in the first quarter of this year rose by 3% from the respective period last year. At the same time, the beginning of the year shows bigger activity in the construction sector. Construction of residential houses rose by almost 20%, the number of permits for construction of new residential houses has increased by 50%.

Meanwhile, the average HAI in Tallinn dropped 7.3 points to 146.4 points as wages rose slower than apartment prices. In Vilnius, the HAI rose from 132.3 points to 134.7 points as wages increased steeper, and apartment price growth slowed down

.

The time needed for a standard household in Riga to save for a 15 % down payment reached 24.7 months, which is by one month and one week more than in the respective period last year, but less than in Lithuania and Estonia.

The saving time is longer is the household at the same time has to pay for rent. Meanwhile, the saving time is shorter for households in the state support program for families with children in purchase of their first housing.

The time needed to save for down payment dropped by three weeks to almost three years in Vilnius, and rose by one month and three weeks to 30.2 months in Tallinn.

Swedbank publishes its Baltic Housing Availability Index quarterly. The HAI reflects household buying power, based on apartment purchases that have been made, but says nothing about opportunities for apartment sales. It includes mortgage costs but excludes taxes and subsidies, including property tax and interest deductions, as well as housing maintenance costs such as utility bills.

The HAI is calculated for a family whose income is equal to 1.5 of average net wages with an average-sized apartment of 55 square meters. The HAI is 100 when households use 30% of their net wages for mortgage costs. When the HAI is at least 100, households can afford their housing, according to the established norm. The higher the index, the greater the affordability.