Swedbank economist Marianna Rõbinskaja said, that while the previous two years had seen exceptionally active and strong demand for new homes, at the end of last year, demand began to fall.

Reservations for new developments are now at a low point, with just over a hundred made in the first quarter, compared with as many as 800 in the pre-pandemic period and well over 1,400 in the first quarter of 2021.

"From this peak, there has been a 12-fold drop," said Rõbinskaja, who added that the figures were the lowest in 13 years.

The market was down 40 percent from its peak, and around 20 percent lower than during the pre-pandemic period.

"There has been exceptionally strong price growth in recent years, in the last two years, but in fact in the couple of years prior to that, it was stronger than net rise in salaries, which has worsened the relationship between the cost of an apartment and people's salaries," said Rõbinskaja.

However, Q1 2023 was the first quarter in a long time when net wage growth in Tallinn outpaced apartment price growth. Though actual wages were still falling, as inflation is also on the way down, they should start to gradually rise in the near future, she said. Nevertheless, it will still take a long time for household purchasing power to return to 2021 levels.

With developers sharply increasing prices due to strong demand and interest rates also rising, the affordability of new developments has fallen significantly over the past two years.

"The secondary market continues to be affordable, but if we look at new developments, for several quarters, for the whole of last year even, these have been out of reach for many families," Rõbinskaja said.

The affordability of apartments will continue to fall in Q2 and are set to remain low this year due to the continuing rise in interest rates. However, this should begin to improve once the euro interest rate peaks in the second half of the year, as markets expect it to.

Average home loan is €121,000.

According to Anne Pärgma, head of Swedbank's home loans department, the home loan market has been very active for the last two years. However, in Q4 of 2022, it began to slow down. Essentially, loans are still being taken out, but the amounts are much smaller.

The average home loan has grown to €121,000. The biggest borrowers are those aged between 31-35, who on average have loans of €136,000.

The largest loans are taken out in Harju County, where the average is €140,000. While average loan sizes have increased by five percent in Harju County, in Estonia as a whole, they are up by seven percent.

The average loan amount in Tartu County is €126,000. While the average in Tartu County used to be 17 percent smaller than in Tallinn, the gap has now narrowed to 10 percent.

Pärnu County ranks third in Estonia in terms of average loan size, with €94,000.

Võru County and Valga County have seen the largest decreases in the average loan amount, at €55,000 and €38,000 respectively.

62 percent of apartments bought are in buildings constructed before 2000. The share of new developments is 19 percent.

The average amount of own funds contributed has increased by €6,000 to €43,000. Nearly 60 percent of borrowers have invested less than €30,000 of their own private funds, while for Kredex guarantee users this has reached €16,200. Around 15 percent of home loan borrowers use the Kredex guarantee. The average family needs 33 months to accumulate the money to raise the required equity.

According to Swedbank, the number of home loan debtors is very low. Housing loans, which are more than 90 days overdue account for just 0.05 percent of Swedbank's loan portfolio.

Ero Viik, head of Swedbank's real estate and construction department, said that the ten largest developers in the Estonian real estate market account for around 60 percent of all new apartments that come onto the market. Because they are in a strong financial situation, there is no rush to sell new apartments and therefore little pressure for them to make cheap sales.

In the commercial property market, buyers are looking to acquire assets at a large discount, however, sellers are not motivated to offer significant reductions. As a result, the number of transactions has been plummeted over the last year. In 92 percent of cases, buyers are local investors.

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