First positive signs in the housing market, but faster recovery may have to wait

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 0.1% in May 2024. The overall level of apartment prices in Lithuania’s major cities has grown by 2.7% over the last 12 months (annual growth of 2.8% in April 2024).

In May 2024, the sales prices of apartments in Klaipėda, Šiauliai and Panevėžys grew by 0.5%, 1.0% and 1.2%, respectively, and the average price per square metre amounted to EUR 1,689 (+8 Eur/m²), EUR 1,120 (+11 Eur/m²) and EUR 1,100 (+13 Eur/m²). Meanwhile, Vilnius recorded a 0.1% decrease in apartment prices in May, with the average price per square metre amounting to EUR 2,603 (-2 Eur/m²). In Kaunas, the average price per square metre remained unchanged at EUR 1,766 per square metre.

Over the year (May 2024 compared to May 2023), apartment prices grew in all major cities of the country: in Vilnius – by 1.8%, in Kaunas – by 2.7%, in Klaipėda – by 5.2%, in Šiauliai – by 4.0%, and in Panevėžys – by 4.1%.

“It can be said that the Lithuanian housing market has already reached its lowest point of activity in the last few years. In May this year, even after a 26-month break, a positive annual change in activity was recorded, when more apartments were purchased in Lithuania than a year ago. Of course, the annual increase in activity is not significant (1.2%), but it is already the first sign of a stabilised housing market. But the number of transactions is still at its lowest point since 2015 and at the moment both sellers and buyers are not showing much optimism.

Despite the continued sluggishness in the housing market, sellers are still managing to sell their homes at slightly higher prices than before. They just have to accept a noticeably longer selling period as the market continues to suffer from a lack of firmly committed buyers. And looking at the situation in the country’s housing market over the last two years, the patience of home sellers has paid off and the majority of buyers have not been able to get lower prices.

As expected, in June this year the European Central Bank (ECB) cut its key interest rates for the first time after a long pause. This is one of the most anticipated decisions for real estate market participants, who have been living in a shrinking market environment for the last two years and have been waiting for something that could change this situation. The ECB’s decision to cut interest rates is in itself a positive signal for housing market participants (both sellers and buyers), but the level of the interest rate change does not mean that from now on we will see a rapid return of buyers to the market or rising investment in new housing development. The burden of servicing loans for borrowers or those planning to borrow has already started to ease since the end of 2023, when we saw a gradual decline in the EURIBOR rate. Obviously, that first drop in interest rates has not yet had a major impact on homebuyers’ decisions and they are waiting for a bigger incentive, either more attractive house prices or a more tangible drop in interest rates.

Market participants do not hold out much hope that the ECB will cut interest rates again in July this year and are hinting at a less frequent pace of rate cuts. Therefore, it can be predicted that the recovery of the housing market will also be delayed and that at least the summer period of this year will not be characterised by any major changes in house prices or market activity”, says Raimondas Reginis, Research for the Baltics at Ober-Haus.