Real Estate Expert: Home Affordability Has Quietly Improved This Year
According to Igor Habal, a board member of Uus Maa, Estonia's largest real estate agency, stable real estate prices and rising average wages have made home purchases more affordable
"If in the third quarter last year you could buy 0.54 square meters of real estate in Tallinn for one month's salary, then at the same time this year you could buy 0.59 square meters. Statistically, it takes a person with an average net salary seven years to pay off a 50-square-meter Tallinn apartment. Last year at the same time it took 7.7 years, and in the third quarter of 2022, for example, 8.1 years, which is already quite a significant difference," said Habal.
"If real estate prices have not risen against the backdrop of wage growth and inflation, then it actually means an improvement in affordability. For example, if inflation over the last two years is 9.2% and real estate prices have remained stable during that time, then it essentially means that real estate has become cheaper by the rate of inflation," said Habal.
"Currently we are at the same level of home affordability as in the second quarter of 2021, before the sharp rise in real estate prices and rapid inflation, when you could also buy 0.6 square meters of a Tallinn apartment with a monthly salary. However, the price of borrowing money is now more expensive, meaning interest costs – in the second quarter of 2021, the euribor and bank margin combined averaged 2.1%, but at the same time this year it was 4.8%," said Habal
"Since economic growth is not meeting expectations in the US or Europe, central banks are expected to continue lowering interest rates to stimulate the economy. Banks are also fighting on behalf of their clients and offering better terms than before, all of which is gradually making home purchases more affordable," said Habal
"In Estonia, high euribor, which caused problems over the last year, has already become something we are used to, and the main problem is rather consumer confidence. People fear the impact of tax increases and uncertain times. However, the economic fundamentals have already been through the worst, and we are rather moving slowly in the direction of improvement," added Habal
"The economy is cyclical and over a 20-30-year loan period there will inevitably be times of rising money costs and economic downturns, but also the opposite. If you look at the real estate market, for example, from the perspective of the last ten years, then in eight out of ten years the value of the property has still grown," said Habal
"Currently, however, people are price-sensitive and real estate is predominantly operating as a buyer's market. Money hasn't run out, but people are simply afraid to spend it. At the same time, the real estate price decline that has occurred over the last year and a half has likely already hit bottom or is close to it," added Habal.
