Considering the general importance of the housing market, the Bank is publishing a new half-year issue entitled “Housing Market Report”. In 2015, the domestic housing market improved significantly, which was associated with a 10 per cent rise in house prices, in addition to increasing market turnover. The volume of new housing loans grew by around 50 per cent in 2015; however, the stock of housing loans continued to decline at an annual rate of nearly 4.6 per cent. The pick-up in the housing market is segmented in several aspects. On the one hand, it was primarily the market of used dwellings, which improved, while, except Budapest and its agglomeration, the western Hungarian region was practically the only region where an improvement was seen. As a conclusion, neither the increase in housing prices nor the expansion of new lending can be considered excessive. The risk level is currently low.

Budapest, 2 May – The Magyar Nemzeti Bank is publishing its new issue entitled “Housing Market Report” for the first time. The purpose of the Report, to be published semi-annually, is to provide a comprehensive picture about the current trends of the domestic market and to present the macroeconomic and financial stability aspect of the housing market in a coordinated and unified way. In addition, the publication expounds the regional trends of the domestic market as well. The details and depth of the Housing Market Report creates an opportunity for presenting and specifying researches, deeper analyses and methodology developments related to this topic. With the comprehensive approach of the new publication, the MNB stands among the first, even at international level, to provide a comprehensive presentation of housing market trends.

Housing market is especially important for the central bank: these developments are not only closely related to financial stability issues but are also fundamentally determining the short and long-term prospects for economic growth. The housing market is intrinsically linked to all areas of the national economy. Housing market developments, in particular the volatility of housing prices, influence the savings and consumption decisions of the household sector through their financial position, and also influence the portfolio, profitability and lending activity of financial institutions through the stock of mortgage loan collateral.

Macroeconomic environment generally acted towards a recovery in the real estate market, thus a strong pick-up was observed on the domestic housing market in 2015. This recovery was supported by a number of demand factors, while at the same time it is also hampered by several supply constraints. The purchasing power of households’ income has increased with rising real wages, which influences the demand side of home purchases, and long-term labour market prospects have also improved significantly. The low interest rate environment also has positive effects: on the one hand, it substantially boosts housing market demand thanks to the favourable financing costs, and on the other hand it also supports significant investment demand on the housing market. Furthermore, demand is facilitated by the easing pressures from households’ deleveraging and by the elimination of exchange rate risk thanks to the conversion of foreign currency loans. However, the general recovery in housing market demand is also shaped by demographic trends in Hungary. The declining population based on current projections is restricting demand in a longer run, while in and around Budapest, as well as in the north-western counties domestic migration boosts local housing market demand. However, on the supply side of the housing market, obstacles to a healthy recovery may include the large number of properties functioning as collateral for non-performing mortgage loans, banks’ moderate loan supply, and shortages of labour and building materials in the construction industry.

Despite the substantial growth of house prices they have only reached yet the level of prices observed before the global financial crises, overall the rise in prices can’t yet deemed to be excessive. The housing market does not show a uniform picture in terms of geographical and sub-segment developments. The recovery was primarily visible in the sub-market of used homes in Budapest and in larger cities, while no significant improvement occurred in the case of new dwellings and smaller settlements. The number of issued building permits rose by 30 per cent in 2015, while the number of new constructions fell in the same period; the reason for this may be a wait-and-see approach on the part of real estate developers. Thus, overall, new supply remains at a low level. The measures introduced by the Government in early 2016 may considerably influence the market of new dwellings, contributing to a more balanced recovery. While the expansion of the home purchase subsidy scheme for families (HPS) may generate significant additional demand on this sub-market, the decrease in the VAT on new dwellings may contribute to the completion of deferred investments, ensuring new supply of adequate quantity and quality.

Improving demand conditions on the housing market are reflected also in lending developments. In 2015, on an annual basis, the volume of newly issued housing loans grew by roughly 50 per cent, while the stock of housing loans is still declining with an annual pace of 4,6 percent as a result of transactions. The “debt cap” rules in effect since January 2015 ensure a healthy recovery and prevent excessive burdens for debtors. However, it has also been observed, that the recovery is primarily related to used properties. Based on the Lending Survey, banks did not significantly change conditions on housing loans in 2015, and the majority of banks reported an increase in demand. Home purchases using loans is also supported by the low interest rate environment, while the elimination of households’ foreign currency risk as a result of the conversion may also ease banks’ loan supply constraints.

Overall, we view the recovery on the housing market as favourable. The dynamic growth of house prices and the expansion of the volume of new housing loans are not considered to be excessive, thus the current risk level is low. However, housing market developments still need to be closely monitored, due to the frictions on the supply side, the significant increase in demand and the external factors affecting the market.


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