The European Central Bank’s (ECB) decision to cut the EURIBOR rate in June was a long-awaited milestone for market participants. Although the reduction was modest — only 0.25 percentage points, with identical cuts in September and December — it symbolically marked the end of peak inflation and a gradual recovery in the housing market. By the year’s end, transaction volumes increased, but buyers continued to exercise caution. Estate agents noted that previous concerns about fluctuating monthly loan payments have largely subsided, encouraging more confident steps toward purchasing real estate. According to ECB projections, further rate decreases are expected in 2025.

"Credit rates will always influence the market, but it’s essential to look beyond this single metric and consider broader economic factors, such as government tax policies, corruption, demographic shifts, and labour issues, all of which affect both the overall economy and the housing market. Too often, excessive emphasis is placed on interbank interest rates, while other critical factors are overlooked," says Ksenija Ijevleva, market analyst at Latio, as she highlights the role of Euribor within the broader real estate ecosystem.

For 2025, no significant disruptions are anticipated in the real estate market, including price fluctuations. The labour market remains stable, with rising wages in some sectors. Positive legislative changes will also benefit existing borrowers, easing refinancing conditions. Amendments to the Consumer Rights Protection Law, introduced last year, eliminate the need for a lender’s consent and any compensation to the previous lender for refinancing. In their turn, cap fees for signing a new loan agreement shall not exceed 1% of the loan amount. These changes are expected to spark higher refinancing activity after borrowers receive their final government support payments. This will make it simpler and more cost-effective for homeowners to switch banks and seek better loan conditions. The high EURIBOR rates of recent years forced many potential buyers to compromise — opting for smaller properties (for instance, a one-bedroom apartment instead of a two-bedroom unit) due to failure to qualify for the initial mortgage amount, or renting while waiting for better market conditions. In 2025, a resurgence of interest in larger homes is anticipated, as buyers might revert to their original vision of a dream home.

The rental housing market has undergone a transformation in recent years, having become more dynamic. Earlier, the option of renting a home was a temporary solution or an interim step before purchasing a property. Currently, renting is a preferred choice for many - not as a financial compromise, but as a lifestyle decision. Tenants prioritize flexibility, diverse locations, and the opportunity to reside in premium properties without long-term mortgage obligations. The rental market is expected to remain vibrant year-round, not just during the summer when demand peaks due to student relocations. Latio’s observations indicate that the rental market “breakthrough” has been noted by property owners and small investors acquiring compact apartments in city centres for short-term rental purposes. These transactions are predominantly financed through personal savings, reflecting residents’ desire to protect their assets from inflation while increasing financial security. Similar to potential buyers, tenants are also looking for modern, comfortable, contemporary housing that they are willing to pay a reasonable price for.

The trend of purchasing properties abroad, observed in recent years, particularly in Southern Europe, will remain steady. Geopolitical factors and the potential for financial growth motivate buyers to invest in properties that can generate rental income while owners reside in Latvia. However, countries like Portugal has already implemented new regulations, restricting foreigners from independently renting out purchased properties and transferring the short-term rental management to the state.

Regional cities in Latvia are witnessing a surge in rental housing construction, supported by initiatives like ALTUM. Development projects are underway in cities such as Bauska, Jelgava, Valmiera, Tukums, and Ventspils, with Cēsis nearing contract finalization. These developments reflect growing demand for housing outside Riga, driven by job opportunities and lifestyle preferences.

Despite this progress, some challenges persist. Housing shortages are evident in economically developed regions like Valmiera, Cēsis, Ogre, and Jelgava, where prices are nearing those in Riga, in the most sought-after areas. Properties farther from administrative centres tend to be less expensive but often fail to meet modern buyers’ expectations in terms of quality and technical standards. Additionally, securing a bank mortgage for housing in these areas remains a challenge. This is an urgent issue that cannot be resolved by simply constructing a single multi-family apartment building in the city, highlighting the need for strategic, nationwide solutions.