A more favourable house price to wage ratio for buyers in 2023 and 2024

Ober-Haus Apartment Price Index for Lithuania (OHBI), which captures changes in apartment prices in the five largest Lithuanian cities (Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys), increased by 0.2% in February 2024. The overall level of apartment prices in Lithuania’s major cities has grown by 2.2% over the last 12 months (annual growth of 2.1% in January 2024).

In February 2024, the sales prices of apartments in Vilnius, Kaunas and Klaipėda grew by 0.3%, 0.3% and 0.1%, respectively, and the average price per square metre amounted to EUR 2,589 (+8 Eur/m²), EUR 1,751 (+6 Eur/m²) and EUR 1,651 (+1 Eur/m²). Meanwhile, Šiauliai recorded a 0.2% decrease in apartment prices in February, with the average price per square metre amounting to EUR 1,095 (-3 Eur/m²). In Panevėžys, the average price per square metre remained unchanged at EUR 1,075 per square metre.

Over the year (February 2024 compared to February 2023), apartment prices grew in all major cities of the country: in Vilnius – by 1.8%, in Kaunas – by 3.2%, in Klaipėda – by 3.0%, in Šiauliai – by 1.7%, and in Panevėžys – by 1.8%.

“Although the cold snap that has gripped the country’s housing market is not going away yet, one indicator that is important for homebuyers is already showing positive changes. In 2023, the housing market was largely chilled by extremely high interest rates on loans, which reduced the ability of homebuyers to afford to buy with borrowed money. However, looking at the house price-to-wage ratio, in 2023 this indicator started to improve for homebuyers after a two-year hiatus. According to the State Data Agency, in 2023, the average monthly net wage in the five largest cities of the country will grow by 10.5-11.6%, while the average annual growth in the selling prices of apartments in these cities, according to the Ober-Haus data, will reach 6.2-9.1%. Faster wage growth has finally led to a slight improvement in the affordability index in all the country’s major cities.

In 2023, a statistical resident of Vilnius could buy a middle-class apartment in Vilnius of 6.7 sqm (6.6 sqm in 2022) for average net annual salary. In Kaunas, the figure was 9.0 sqm (8.8 sqm in 2022), in Klaipėda – 9.3 sqm (8.9 sqm in 2022), in Šiauliai – 12.3 sqm (11.8 sqm in 2022) and in Panevėžys – 12.9 sqm (12.3 sqm in 2022). Thus, in 2023, a metropolitan resident could already buy 0.1-0.6 sqm more than in 2022.

Looking at the dynamics of house sales prices in 2023 and at the beginning of 2024, we can see that the monthly price increase remains very small, so that the annual price change has fallen to the 2% level. Unless we see a faster recovery of the housing market in 2024, it is realistic to expect an average annual growth of around 2-3% in apartment sales prices this year.

Meanwhile, economists predict that by 2024, the country should see rapid wage growth, which could reach 8-10%. This means that if in 2024 wages were to grow several times faster than house prices, we would see a noticeably faster improvement in the affordability index than last year. Then, in Kaunas, Klaipėda, Šiauliai and Panevėžys, people would be able to buy the same amount of housing for their salaries as in 2020, when the ratio of apartment prices to salaries was the most favourable. Meanwhile, in Vilnius, the affordability ratio is likely to recover more slowly, as apartment prices in the capital city grew faster than in other major cities in the country in 2021-2023. The increase in housing prices in Vilnius is not only driven by the long-standing internal migration factor, but also by the very large number of newcomers from other countries from 2022 onwards. Therefore, the increase in population in the capital in recent years means that there is still a strong demand for housing, which may not allow the housing affordability index to improve as fast as in other major cities in the country,” says Raimondas Reginis, Research for the Baltics at Ober-Haus.