Lithuanian housing market faces declining affordability, potential transaction drop

Despite a currently active real estate market in Lithuania, housing affordability is on the decline, and economists predict a potential drop in transactions next year. Tadas Povilauskas, chief economist at SEB bank, stated that while the coming months are expected to be historically active, the growth may be minimal, with some months potentially seeing fewer housing deals compared to the strong second half of last year.

"The main message is that housing affordability is worsening," Povilauskas explained. "In my opinion, next year we will see a decrease in the number of transactions greater than 3 percent." He attributes this projected decline to the absence of factors that boosted affordability this year, such as the initiation of the second pension pillar reform and adjustments to the Bank of Lithuania's responsible lending regulations. Additionally, rising interbank interest rates, with the 6-month EURIBOR increasing by over 0.5 percentage points this year to nearly 2.7%, are also impacting affordability.

“

The main message is that housing affordability is worsening. (...) In my opinion, next year we will see a decrease in the number of transactions greater than 3 percent.

Currently, the number of housing transactions is approximately 4% higher than last year. Povilauskas noted a significant increase in transactions for individual houses, not just in regional areas but also in municipalities surrounding major cities. This trend is partly driven by rising apartment prices, especially in central urban areas, prompting people to seek more affordable alternatives like townhouses in suburban areas. He also suggested that funds from pension funds may have positively influenced the market in smaller municipalities.

“

Flats, especially around the central parts, have become significantly more expensive, so again people are looking for cheaper alternatives with townhouses, speaking of suburban municipalities.

Data from SEB reveals that from January to July this year, apartment transactions increased by 2%, while individual houses saw an 8.5% rise, garden houses 17.5%, non-residential premises 18.9%, and land plots 7%. Significant annual increases in registered individual home sales were observed in municipalities like Plungė (89%), Prienai (76%), and Kėdainiai (54%). Meanwhile, the largest annual increase in registered apartment sales occurred in Vilkaviškis district (81%).

However, Povilauskas pointed out a substantial increase in housing supply in Vilnius during the second quarter, noting that the city now has a historically large supply. Despite this, housing prices have risen sharply, with an average annual increase of 14.7% across Lithuania (excluding Vilnius) and 21.1% in the capital, indicating a distorted market.

“

If we were talking about a shortage of supply about four months ago, at this moment we have a historically very large supply.