When at the beginning of the year, Europe and Lithuania were hit by COVID-19, the forecasts for the real estate market were really pessimistic. Now that we can see the light at the end of the tunnel, we can calmly review the year’s results and predict what awaits next year.
According to Ober Haus data, comparing November 2020 with November 2019, housing prices rose in all major cities of the country. In Vilnius, the growth reached as much as 4.6%. According to the data of the Registry Center, the total number of real estate purchase-sale transactions registered in Lithuania in January-November of this year. amounted to 116.1 thousand and was only 2 percent. lower compared to the same period last year.
Another important indicator is the annual inflation or consumer price index (CPI). According to the data of the Department of Statistics, the CPI reaches 0.6%, which means that prices compared to November 2019 grew by 0.6%. There were fears that together with the economic stimulus measures and the infusion of additional money into the economy, inflation would rise significantly, along with real estate prices. But for now, at least, the statistics belie such fears. Or maybe we are happy too soon and inflation will have a bigger impact in 2021?
The change in real estate prices is determined by the ratio of demand and supply. When demand shrinks, fewer properties are sold, so it’s natural that prices fall. Conversely, if demand increases, buyers cannot find the property they want or compete fiercely for it, prices rise.
This can be influenced by many different factors: global and local economic situation; bank financing policy and interest rates; standard of living curve; demographic situation; number of projects under development. This time I want to review the factors most relevant in the near future.
- The ratio of demand and supply of real estate is healthy and has hardly changed over the year. There are no obvious signs of a possible drop in demand yet.
- Demand and people’s purchasing power arise from rising wages and the general standard of living, and are not artificially stimulated, as, for example, before the financial crisis of 2008. At that time, loans were distributed irresponsibly and without down payments, thus artificially creating demand. Such banking policies led to large jumps in real estate prices, and ultimately to an economic crisis.
- According to the data of the Department of Statistics, even while fighting the effects of COVID-19, the country’s GDP fell slightly – only 0.8% in the first 3 quarters. This is significantly less than was predicted at the beginning of the pandemic. The average wage in the country grew, while the unemployment rate increased by only 3% during the year. This allows us to say that despite the restrictions, the local economic situation has not changed significantly. Naturally, these numbers will not fundamentally change the demand for real estate either.
- The housing financing policy of banks is extremely favorable for those who want to borrow. Interest rates are relatively low, averaging around 2.2%.
- As the pandemic slowed down the pace of life and many people moved their offices to their living rooms, people began to pay more attention to their home environment. This factor also contributed to the fact that demand did not fall even in such extreme conditions.
- The pandemic did not encourage real estate developers to plan more projects. It is also not clear how many projects have been abandoned. As the demand does not decrease, we can only hope that the supply will remain adequate. Otherwise, it may be the reason for the price increase.
- Stimulus measures can still cause inflation and scare people who have a lot of cash or deposits into investing in one of the most liquid asset classes, real estate. Such a trend is already visible, so demand is likely to continue to grow.
- According to the “Verslo žinios” portal, demand can also be stimulated by our neighbors from Belarus. As more and more Belarusian businesses move to Lithuania, immigrants may need about 1,000 additional housing units. Such a need is likely not one-time and will last for several years. 1000 apartments on the Vilnius market is one fifth of the new apartments sold every year. Thus, an extremely significant factor in the market.
In conclusion, I dare to say that in 2021 the situation in the real estate market will remain stable and prices will continue to rise gradually. There are no signs of a fall yet. So if you are considering buying real estate, you can breathe easy and start your search. And if you don’t feel confident about your personal financial situation yet, you shouldn’t rush. The general economic situation and trends in the market are important, but much more important is to properly assess your opportunities and only then think about new financial obligations.
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