RIGA - Not exactly 'green shoots' yet, but signs of a bottoming out in the residential housing market can be seen as prices for Soviet-era flats in Riga have begun to stabilize, after a nearly 70 percent drop from their 2007 peak, in some neighborhoods, according to real-estate company Ober Haus, reports news agency LETA. Though still falling, the pace of decline has slowed substantially from the beginning of this year.
Ober Haus analysts point out that the fall in apartment prices has slowed, that if in the first quarter 2009 prices fell by 29.3 percent, the second quarter drop was 'only' 8.8 percent, year-on-year. The average price of a Soviet-era apartment in Riga was 763 euros per square meter in Q1, compared with a Q2 figure of 478 euros per square meter, a drop of 37 percent quarter-to-quarter.
Month-to-month, from May to mid-June 2009 the average price dropped 1.1 percent, to about 460 euros per square meter.
This is good news on housing prices, but for those owners with mortgages, and therefore monthly payments, falling asset values create different issues once the value of the home drops below the level of debt against it, a problem now for many in Latvia.
More than half the Latvian mortgages issued by Swedbank AB, for example, which is the largest bank in the Baltics, exceed their collateral value, a result of collapsing property prices, reports Bloomberg. "The loan-to-value ratio exceeds 100 percent in over half, 54 percent, of home loans issued in Latvia by the end of June," reported Swedbank spokeswoman Jenny Clevstrom in Stockholm. Numbers in Lithuania were also high, at 37 percent, and for Estonian mortgage-holders, 24 percent.
Swedbank Estonia's spokesman Mart Siilivask says that "The decline in collateral prices is due to the present situation of the property market - according to Swedbank analysts the prices of apartments in Tallinn have declined by 53 percent from peaks in the summer of 2007." "The price decline in the Latvian capital, Riga, has been 68 percent and in the Lithuanian capital, Vilnius, 28 percent," he adds.
A fall in the value of the collateral, below the outstanding loan amount, triggers banks to take action and demand additional guarantees from its customers. It also brings into question, for the homeowner, of whether it is worth considering to just walk away from a home that is 'under water', whose value is less than its loan value.
Swedbank says it is not planning to do this for its mortgages that are not in arrears, said Swedbank Estonia's chief executive, Priit Perens. And Swedbank director Maris Mancinskis has said that "all the borrowers who took out mortgage loans for a home and had been honestly trying to solve their problems, were provided help and not evicted."
