Inflation is reflected in house prices in Latvia
The increase in house prices in Latvia in 2021 was as inevitable as impossible it would be for the European Central Bank (ECB) in Frankfurt (Germany) to stop printing the euro.
An overview of consumer price changes in 2020 was provided by Neatkarīgā on January 13 this year under the heading “Sensational. Printing money leads to low prices” (in Latvian). The publication was directly concerned with the price measurements that do not include house prices. Statisticians have been allowed not to study prices, which are much harder to find out than the prices of bread in shops, but which still cannot live a life separate from the general economic situation. It is considered that many summaries of easier, more convenient, cheaper to find out prices are enough to express the total price trend towards increase (inflation) or decrease (negative inflation, deflation), and also the quantitative value or speed of this trend. Therefore, house prices also induced surprise with the discrepancy between printing money and falling prices.
Assessing real house prices is indeed a difficult task, for which statistical knowledge is not enough. In Latvia, this task is performed voluntarily, more as a gift for the benefit of the society rather than as a component of self-promotion, by two real estate brokerage companies Arco Real Estate and Ober Haus; Latio did the same for many years but is no longer doing so.
It does not follow from the general economic trends that all price changes coincide on a daily or monthly basis. In particular, the percentage decline in house prices in 2020 was very similar to the decline in daily commodity prices, but did not coincide with the increase in consumer prices in the consumer basket, which offset the effect of the decline in commodity prices. State-paid statisticians said they had noticed a price zigzag - a microscopic increase last summer, but realtors did not notice anything like that in real estate price fluctuations. Switching from last year to this year's prices, “technically and officially, Latvia has violated two border lines between different inflation zones this year. Two months ago, the zero line between 0.2% deflation in February and 0.3% inflation in March was broken. The 1.7% annual inflation achieved a month ago is already well above (..) the fluctuation area by tenths of a percentage point, where inflation had remained for many years before," Neatkarīgā discussed the official statistics on May 12.
The latest news on price changes has been provided by the Central Statistical Bureau, Arco Real Estate and Ober Haus for April. In the history of housing price measurements so far, for almost 15 years now, there have not been many months when the calculations of two companies lead to an identical result. This is the case in April, when Arco Real Estate and Ober Haus estimated the average price of apartments in Riga standard-type apartments at 820 euros per square meter. It must be reminded right away that the average price is not a guarantee that the buyer will get exactly what he wants at such a price. With a 99% guarantee, it can be said that he will pay more because many want the same thing he does. The average price hints at objects that he does not want and others do not want, but someone still buys in the end.
The price of 820 euros still slightly lags behind the 822 euros, which Arco Real Estate listed as the price of standard construction in Riga in January and February 2020, i.e., in the last months before Covid. Immediately afterwards, Covid-19 lowered all prices and justified the euro and other currency issuance, as it allowed the printing of money to be presented as a concern for price stability. Indeed, falling prices are also a form of price volatility.
On January 13, Neatkarīgā showed how many euros had to be printed from the beginning of 2020 to November in order to turn real estate prices from falling to rising in Latvia, on the outskirts of the European Union. It is now possible to present a continuation of the ECB's report on money printing until March, which has ensured the nominal value of housing in Latvia at the level of the beginning of 2020. Money printing has continued and will continue, as has the money dripping from Frankfurt to Latvia. First, the EU lends or even gives money to Latvia. Second, Latvia exports - gives back its natural values (wood) and work for money created from nothing. So much money has already been printed that prices will continue to rise throughout this year, even if the ECB suddenly stops printing money altogether. Come what may but stopping the EU or the USA, whose dollar affects Latvia to a great extent, from printing money cannot be expected, nor China and Japan, which affect Latvia through the general economy in the world.
* Abbreviation from "money"; the amounts for various forms of non-cash are shown here.
** The dynamics of euro volume growth in the first quarter of this year is presented here
"There is no understanding of what is happening," said Edgars Šīns, Chairman of the Board of Latio, to Neatkarīgā. "No one knows how much money will be printed and how it will cover Latvia," he explained the reason for his uncertainty.
Uncertainty about the future is related to how an increase in the nominal prices of all goods and services will affect the price ratio and the availability or unavailability of goods. There are even examples in history where the prices of a home sale or rental are expressed in flour bags, potato bags or diamonds. Of course, this is not a guarantee that such a past is in Latvia's future. The consequence of this uncertainty is that, according to E. Šāns, there is no tendency for people to specifically try to turn their money into real estate or real estate into money in the belief that it will give them an advantage in the future. People try to settle in as comfortably as possible today, counting only on today.