TALLINN - A leading economist has predicted that as many as 20,000 people could lose their homes because they are unable to meet loan payments.
Economic analyst Jaan Omblus told Eesti Paevaleht that a failing Estonian economy could lead to as many as 15 percent of families who have taken out a home loan being unable to meet their payments.
"Loss of about 50,000 jobs and pay cuts that could affect up to 100,000 people in the next few years could realistically create a situation where about 20,000 families can no longer repay their housing loans and could lose their home," Omblus said on May 12.
Omblus blamed the problem on the worsening economy, growing unemployment and a fall in industrial output.
"The manufacturing industry is packing and the Ministry of Economic Affairs admits that exports are not encouraging. Trade flows carried by rail are back at the 1996 level and inflation does not show signs of slowing down. Even such a stable company as Estonian Post is laying off hundreds [of employees]," Omblus told Paevaleht.
The Estonian housing market experienced a major surge at the end of 2007 and the beginning of 2008, with housing sales up by more than 30 percent last December.
Despite the large increase in real estate activity, Postimees reported on May 12 that the boom had been focused on one and two room apartments, and that there had not been a significant increase in housing per person.
The daily also noted that the move toward smaller, block housing was a result of a downturn in the Estonian economy.
The central bank has also recently reported that the quality of home loans has been decreasing. On March 26, the central bank said the volume of overdue housing loans had already risen to nearly 1 percent.
Omblus lays the blame for the pending housing crisis squarely at the feet of the government, and said that the ruling coalition would have to pay the consequences of the growing problem.
"The government that ignores when 20,000 families lose their homes to banks will not remain in power for long," he said.
The average interest rate on a housing loan at the beginning of the year was 6 percent, according to statistics from the central bank.