As always, the real estate market was the first to feel the effects of the economic fluctuations. As soon as changes negatively affecting income stability or increasing future insecurity occur, the housing market tends to come to a halt. This is exactly what happened in spring after the announcement of quarantine.
Yet, when the government smoothed out the restrictions, the real estate market in Vilnius came back at full force. The coronavirus did not hit Lithuania so badly, and it has come off it in decent shape and in relatively good spirits, and so the real estate market returned to its usual state rather quickly. After quarantine, forecasts promised us a 'U'-shaped economic bounce, when the economy stays in decline a little longer and optimism is at a moderate level. We are glad to note that we remained positive to witness a quicker recovery.
The underlying reasons were most probably related to the fact that the crisis was not economy-based, but rather healthcare related. This meant that our economy took a slight dip, consumer confidence monitored by Statistics Lithuania soon returned, the labour market was not destroyed, and separate sectors made a full recovery. The housing market graph reflecting future home reservations is reminiscent of the letter 'V'.
Vilnius RE market new reservation dynamics in 2020 (CITUS data)
However, there are a great many things that might bounce back: a ball will bounce back if thrown from a great height. So would a pan, and even... a dead cat. The only difference is that a ball will bounce several times, i.e. the effect is long-lasting and sustainable, and the poor animal will do so only once. To clear up any unsavoury associations, let us remind ourselves that a 'dead cat bounce' is an economic term, whereby in finance, a 'dead cat bounce' is a temporary recovery of asset prices from a prolonged decline. Derived from the idea that 'even a dead cat will bounce if it falls from a great height,' the phrase originated on Wall Street, and it is popularly applied to any case where a subject experiences a brief resurgence during or following a severe decline.
Illustration from Investopedia.com
In such a case, the RE market graph would start looking more like the letter 'W' or another letter, leaving nothing to celebrate.
However, I am of the mindset that this will not happen, and so let us save our optimism for later. Various sources show that autumn will not bring such a strict quarantine as we had in spring. Firstly, we have a Seimas election around the corner, meaning that the current government will refrain from making such a powerful decision, leaving it to the new government. The world also seems to be leaning towards the opinion that heavy restrictions do not seem to have a significantly higher effect compared to such simple measures as wearing masks, following hygiene recommendations, and keeping social distance, and we are also nearing the development of a successful vaccine. Even if not, this new reality will not come as a surprise, and will not shock anyone as it did in spring.
My guess is that the market will stabilise slowly in its own time. However, this is only a guess, as forecasting requires more data on the virus, its spread, and possible contagion across countries, vaccination, and treatment. Of course, we should not expect much growth for now, and we need to give it some time until the Vilnius market reaches its full potential.
Still, when the market is calm, no changes, including the prices, come forth. At the moment, prices have almost remained the same. We have no overflows of projects, and the situation has become more favourable to those who are on the lookout for a new home. They do not have to rush their decisions, and can compete or make up their minds after careful consideration. Perhaps they can even squeeze in some mushroom picking.
Numbers and facts
- Number of reserved homes (apartments and semi-detached houses) in Vilnius per month before quarantine: 556 in January 2020, 650 in February 2020, 310 in March 2020 (CITUS data)
- Number of reserved homes during quarantine: 51 in April 2020, 112 in May 2020, 311 in June 2020 (CITUS data)
- Number of reserved homes after the quarantine: 307 in July 2020, 417 in August 2020 (CITUS data)
- Forecast of reservation numbers for April 2020 through April 2021 (CITUS data):
- Consumer trust ratio August 2019 through August 2020 (Lithuanian Statistics data):
- Intentions to purchase or build a house, apartment, summer cottage, etc. within the upcoming 12 months; combined percentage of 'Absolutely yes' and 'Maybe' responses (Lithuania Statistics data):
Translated by MP Translations Agency in Kaunas.