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Housing Market Report - May 2017

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The Hungarian housing market cycle entered a more mature phase in 2016, with the supply side responding to increased demand staging a clear recovery. In addition to households’ improved income and labour market position, a low interest environment continued to support the demand side. Meanwhile, the recovery in lending is making increasing contribution to growth in demand. On a national average, Hungarian housing prices showed an annual increase of 15.4 per cent at the end of the previous year, accompanied by continued considerable regional heterogeneity. Housing prices rose most strongly in the capital, by slightly over 22 per cent in an annual comparison. This is significantly higher than the housing price dynamics in rural towns and villages. Overall, neither growth in the volume of new housing loans, nor the national average rise in housing prices shows sign of overheating.

Budapest, 12 May 2017 – In 2016, the Hungarian housing market continued to be characterised by rising housing prices and increasing sales, while the market cycle reached a more mature stage. According to the MNB house price index, Hungarian nominal house prices grew at a rate of 15.4 per cent in 2016, while a slight rise in inflation resulted in a deceleration in the annual growth of real prices by the end of the year. Price appreciation was the strongest in Budapest, where it amounted to roughly 22.5 per cent, which was lower than the values of 25-30 per cent seen in previous periods. In rural towns, housing prices increased by 13.8 per cent, while they rose by slightly over 9 per cent in villages in 2016.

On the demand side of the housing market, all factors are pointing towards a recovery. Households’ disposable real income has shown stable growth of 3-4 per cent for several years now. Additionally, the net financial assets of the sector are continuously increasing, and labour market prospects also improved in 2016, thanks to the decline in long-term unemployment. Rising real income and favourable labour market conditions contributed jointly to the improvement in long-term income expectations which are of key importance in terms of housing investments. In 2016, lending processes also continued to support the recovery of housing market demand. In addition to favourable financing costs, the volume of new housing loans granted grew by approximately 42 per cent. The weight of housing purchases from loans increased somewhat, exceeding one half of the transactions. The debt cap rules continue to restrict excessive indebtedness, and thus the growth in new lending can be still deemed sustainable. The majority of borrowers took out loans far below the limits.

Considering the supply side, the housing market showed a definite improvement in 2016. The extension of processing time for construction permits resulted in a slower rise in house starts, but after a sharp rise in the number of construction permits issued, the number of completions showed also a double-digit increase in 2016. Several new housing project started in Budapest, the majority of which will be completed in 2018, and thus price pressure on the Budapest housing market may decline, due to a continuous rise in supply. In respect of developments, the lack of skilled labour may continue to represent a restrictive factor. However, the fact that the growth rate of housing prices has exceeded the growth rate of construction costs for years, has a favourable impact on the willingness to develop property.

In addition to the Budapest housing market, the real estate market of the resort area around Lake Balaton is outstanding both considering its size and in tourism terms, and hence this report deals with housing price developments around Lake Balaton as a focus topic. Housing prices in the Balaton region show greater stability over the long term: following the crisis, they lost value to a lesser degree compared to the national average, but currently price appreciation faster than national average is not being observed.

Overall, based on the current developments on the housing market it can be established that the recovery on the market has passed through its initial phase, and the housing market has reached a more mature phase, where supply is responding by adjusting to the increased housing market demand. According to our calculations, in terms of the national average, the Hungarian housing price level is below the level justified by macroeconomic fundamentals, and thus the continuous increase of housing prices can still be deemed sustainable. However, trends in Budapest must be monitored closely.

The Magyar Nemzeti Bank will publish the latest values of the MNB house price index besides the Housing Market Report on a quarterly basis in the context of a statistical publication. The values of the MNB house price index referring to a specific quarter will be published four month after that quarter, thus the first statistical publication containing the MNB house price index for the second quarter of 2016 will take place at the beginning of November 2016.