5 Reasons Why the Real Estate Market Bottom Is Behind Us

In the second half of last year, an eerie silence descended upon the real estate market. Today, with the arrival of spring sunshine, the first buyers have returned to the market, and smiles are back on the faces of real estate agents. Whether this is temporary or not will always be shown by time. But let us highlight here just five reasons why a longer stagnation may have remained in the past year and what allow us to hope that the real estate market situation will improve this year:

1. The amount of free money is growing. Eesti Pank highlights in its statistics report that as of January 2023, the volume of household deposits grew by 7% and reached 13.5 billion euros. The deposit volume of resident households was 11.2 billion euros, which is 75.9 million euros more than in the previous month and 165.7 million euros more than a year ago at the same time. We have not seen such a deposit balance during the entire period of renewed independence. Yes, this is not distributed equally among the entire population, but it still shows an increase in wealth and how much money is waiting to be invested.
2. Banks are providing home loans. Euribor has indeed risen, but let us remember that home loans were given and taken even when euribor was at 5 percent. When the 2008 financial crisis resulted in loan taps being practically shut off, today competition between banks is very strong and the battle to attract home loan clients is active. Various banks have continuously come up with new marketing campaigns to attract clients. Some offer fixed interest rates, some offer €0 contract fees, but all want to provide loans to clients. Therefore, a potential borrower, if they can even remotely prove their mortgage-worthiness to the banks, will receive their favorable attention.
3. Wage growth continues. The average gross monthly wage in the fourth quarter of 2022 was 1,775 euros and it grew by 9.2% compared to the fourth quarter of the previous year. Although we experienced a significant economic downturn, the average wage was not deterred by it and continued its bold growth. Higher incomes bring greater borrowing capacity and this in turn is not only fuel for transaction activity, but also for potential real estate price growth or at least stability at the current level.
4. Estonians love real estate. The economic environment and geopolitical situation may temporarily worsen, but there is no reason to believe that Estonians' strong attraction to real estate would decrease. There is still a preference to buy real estate rather than rent it, there is still a desire to continuously improve living conditions as incomes allow. According to a study commissioned by Swedbank, Estonians continue to consider real estate as the best investment opportunity – as many as 42 percent of survey participants believe that investing money in real estate is the best possible investment.
5. Consumer confidence is on the rise. Last year, consumer confidence in today and tomorrow fell to a record low level. However, a change occurred in December and since then confidence has improved. In February, all confidence components improved, both the family's economic situation and its forecast for change as well as the forecast for the country's economic development. There is nothing surprising about this either, as both electricity and gas prices have fallen, and apparently the effects of the ongoing war are no longer as significant.

One does not need to be a very clever quill to write in turn an article about how things could go badly on the real estate market this year. Obviously, risks exist on the real estate market today, but risks actually always exist in the economy – whether euribor is in the plus or minus, whether Kallas or Helme is in power, whether unemployment is high or low. Weighty arguments can be found from both pessimists and optimists regarding near-term developments, and the latter can gain additional encouragement from a fresh piece of news in which one of the real estate market's most notable players, Merko Ehitus, announces the continuation of a major new development project. Faith is being restored both among consumers and entrepreneurs.

The last 3 years have definitively confirmed the fact that when man makes plans, God laughs. Therefore, in the end, each person must decide for themselves when making investment decisions on the real estate market based on their knowledge, experience, gut feeling, and account balance.

Article author: Raul Reino, Member of the Board of Domus Kinnisvara