RIGA - Latvian housing prices have drastically dropped off, with the average cost of a home nearly 25 percent lower year-on-year. The decline is by far the largest fall in real estate prices in the European Union for the second quarter of this year.
The Knight Frank Global House Price index found that the price of Latvian homes fell by 24.1 percent year-on-year in Q2 2008.
"The rapidly depreciating housing markets of the Baltic states 's led by Latvia, where prices fell by 24.1 per cent over the past year 's demonstrate that rising inflation and mortgage costs are real risks for the emerging economies of Europe," said Nick Barnes, head of international research for Knight Frank.
The sharp decline was mirrored to a lesser extent in Estonia and Lithuania, which saw the second and third largest drops in housing prices, respectively. The cost of a home in Estonia fell by 16 percent, while the price in Lithuania was 9.9 percent lower, the report said.
Barnes said that the trend seen in the Baltics should serve as a warning to European countries that have seen high levels of investment in recent years.
The report noted that while the decline in housing prices has been sharp, the rate of decline was beginning to show signs of slowing down in both Latvia and Estonia.
"[In Latvia], along with Estonia, the rate of decline is beginning to moderate. Both countries are experiencing high inflation and mortgage rates combined with a slowing economy and pessimism over the outlook for property prices," it said.
The report said that while the situation in Lithuania was not yet as bad as in the other Baltic states, the country "is rapidly becoming comparable to its neighbors" in terms of housing markets.
An InReal real Estate Company report, meanwhile, has shown that the price of standard design apartments in Riga fell by a full 2 percent in August alone. Prices of standard design apartments in Riga's suburbs in August were 1,225 euros per square meter, as compared to 1,250 euros per square meter in July.
InReal analysts found that prices continued to increase until the middle of last year, and then underwent a sharp decline. The company predicted that the fall in housing prices would level off by the end of the year.
"The current trends and growing interest of potential real estate buyers show that the market might activate by the end of the year and the drop of prices might stop, while still maintaining a high supply of real estate properties," said InReal director Ilze Lontona.
"Stabilization of prices will play an important role as people who have decided to purchase real estate property, will stop waiting for further drop of prices and make up their mind on the purchase," the company director said.
Local Latvian analysts have said that a drop in housing prices was inevitable, but that nonetheless realtors are currently facing an extremely unfriendly market.
"The real estate market is in a very tough situation 's it is not possible to make deals. To launch them, prices should drop significantly, but that will be painful to many market players," Chairman of the Board at Dominante Capital Investment Company Rafails Deifts said in an August interview with the Baltic News Service.
"In this situation buyers will have to cope with losses," he said.
