"Looking at other economies, such as Canada or Australia, that are ahead of us hiking interest rates, their real estate markets are in decline. But it does not spell a collapse, simply a correction in prices. SEB forecasts prices in nearby Sweden to also come down 15-20 percent in the wake of interest rate hikes after climbing for 30 years," Arakas suggested.

He added that the situation on the real estate market has been harebrained for some time and can be compared to minutes before a thunderstorm starts and clears the air.

"Right now, the 'no shame in asking' principle rules. This will end, while we will also not see a repeat of 2009-2010. Of course, prices have also grown for developers after the Covid and Ukraine crises. But the river is not flowing as swiftly anymore. The number of transactions is falling, while this will be reflected in statistics a year later. All in all, it benefits the real estate market as an uphill race cannot be good," the businessman offered.

He added that the biggest change will be expectations moving to where they ought to be. This will affect rational buyers less and emotional ones more.

"We are living in a consumer-centric society, and it is among the most important economic indicators. Real estate has been doing swell for the last decade thanks to cheap financing. But central banks are now correcting Covid-era mistakes and turning off the money taps again. The additional money that hit the market has created the current situation."

Arakas' calculations suggest €10 billion worth of home loans have been sold in Estonia, and Euribor hitting 2 percent would see an additional €200 million taken from banks' customers.

"But the effect in soaring energy prices is tenfold that. It is suggested households could spend 1/3 of income on housing. I believe it will be quite different this winter."

The businessman added that he would postpone buying a home by 6-12 months in the current situation.

"I belong in the camp that sees potential for a small drop in prices. The price per square meter will not fall from €5,000 to €2,000, but even a drop to €4,000 would be a clear win."

Arakas said that the prices of private residences have been moving behind apartments. The price difference between apartments and residences could start growing again after the market adjustment.

He added that makers of modular houses that can offer standard solutions could find the situation to their benefit.

Asked whether banks could consider lowering their profit margins, Arakas remained skeptical. "Sporting a negative outlook at home (Sweden – ed.), it is unlikely SEB and Swedbank look on the Estonian market optimistically," he said.

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