The European Central Bank (ECB) is holding off interest rate hikes, but experts are not anticipating the Estonian real estate market to get better soon.

To stop inflation the ECB has already hiked rates 10 times since last fall. Risto Vähi, an analyst at real estate agency Uus Maa, said the interest rate hike would affect everyone with a housing loan and discourage new borrowing.

"For example, if we compare the data for this year's months on the housing market with the same months last year, we can see that there are one-third fewer transactions," Vähi said.

Mihkel Eliste, an analyst at Arco Vara, also said that transaction activity in the housing market has fallen on the year-on-year basis.

"We have already seen a decline in activity since the spring-summer period of 2022, and this decline has gradually deepened. For example, the apartment market in Estonia is now perhaps at the level of 2015–2016. Speaking of more expensive housing, the market for single-family houses, in some regions of Estonia is at the level of 2013 or 2014," Eliste said.

He said that the current trend is more or less the same as after the previous crisis, when people moved mainly to cheaper areas.

"If we look at small towns in Estonia, for example, which illustrate this very well, the markets there are still relatively active. So the residential property market in small towns and suburbs in Harjumaa remains relatively active," Eliste said.

"The liquidity of residences costing over €250,000 has deteriorated noticeably. There are, however, certain quirks. The liquidity of luxury homes, for example, has remained abnormally high. When it comes to single-family homes, sales times for residences over €600,000 are not as short as they were a few years ago," he said.

Vähi said that people are now buying second-hand apartments. "The market for new projects is extremely competitive, and trades are more likely to take place on the secondary market, i.e. with second or third-tier flats," Vähi said.

Also, the surge in mortgage rates has had an impact on prices. People whose older properties sell more quickly are either those who appropriately price them the first time around or are willing to compromise on a lower price than what was initially anticipated.

Eliste and Vähi are both think that a slowdown in the rise of interest rates will not result in a quick drop in the cost of credit or a housing market recovery.

"The ECB has stated that it is premature to begin discussing interest rate reduction plans at this time. So for the time being, we have to embrace the fact that this is the interest rate at the moment," Vähi said.

He hoped that margins would be kept down by increasing competition. "After all, there are a lot of banks in this region, both large and small, all trying to attract consumers. I am very cautiously optimistic that the current trend of rising interest rates has ended; it could remain stable for some time before declining slightly, but I do not expect a significant decline very soon," Vähi said.

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