Estonia's real estate market is starting to resemble the situation just before the 2008 economic crash but experts believe a crash is not likely as owners are better insured now.
Before Midsummer, Bloomberg compared the real estate markets of 19 countries and found housing prices have risen significantly faster than rents and incomes in several countries.
Estonian experts do not believe a crash comparible to 2008 is likely in Estonia.
Mihkel Eliste, an analyst at the real estate agency Arco Vara, told ERR if people who have taken out loans feel they can no longer pay them back and the risks become too high, they will sell their assets.
"If everyone decides to sell at once, it can lead to oversupply. This in turn can lead to a drop in prices. This situation could cause an increase in social tensions, as real estate investors start to shift rising credit costs to the rental market," he said, suggesting rents could start to rise.
But Eliste said real estate investors in Estonia can meet their loan repayments.
Tõnu Mertsina, Swedbank's chief economist, said while the ratio of apartment prices to wages has deteriorated since 2021 the situation is not the same as it was before the financial crisis.
"It may seem strange or surprising, but actually in 2005-2007 a lot more was paid per square meter," he said.
The demand for apartments is at its highest in 20 years but while there are plenty of buyers, there are not enough apartments for sale. Combined with high inflation, this is causing the housing market to become overvalued.
Mertsina told ERR it is difficult to estimate by exactly how much. It is unlikely the situation will change in the near future.
"Real wages will decrease and apartment prices will continue to rise rapidly this autumn and in the first half of next year. Affordability will continue to deteriorate sharply," he said.
But compared to 15 years ago, fewer loans are being given out and both investors and banks are better insured making a sudden crash unlikely.
Housing prices are also rising due to shortages of labor and building materials which means construction projects are being put on hold. Last month, Estonia's inflation was approximately 20 percent.
Editor: Helen Wright