30 November 2023
As demand factors have been unfavourable in the domestic housing market, the level of transactions and new housing loans has remained low country-wide. House prices fell by 0.8 per cent year-on-year in 2023 Q2, due to subdued demand. From 2024, the demand-reducing impact of subsidies in transition will be cushioned by the preferential HPS Plus loan, which could support the housing market as real incomes rise. Insufficient demand has been the main constraint to production in the domestic construction industry, but maintaining the existing capacities is also a major challenge for the sector. While the number of new housing constructions has declined across the country, in Budapest, the high number of housing projects in the pipeline that have been granted a construction permit represents a growth reserve in the medium term.
Employment in the national economy is historically strong, and regular average salaries and wages rose by 18 per cent in the second quarter. However, the fall in real wages due to high inflation and low consumer confidence reduced demand on the housing market substantially. From 2024 on, further progress in disinflation may return housing market activity to a gradual trajectory of growth through higher real household incomes and the expected more favourable credit conditions, as well as support from the newly announced housing subsidy programmes.
House prices fell by 0.8 per cent year on year in 2023 Q2. A year-on-year decline in prices had not been seen in the last nine years, but house prices may have risen slightly again in the third quarter. Looking at the types of municipalities, a significant year-on-year decline of 8.1 per cent in nominal terms was observed in villages in the second quarter, while house prices in Budapest and other cities and towns appreciated by 4.9 and 1.1 per cent, respectively, year on year. The overvaluation of house prices compared to macroeconomic fundamentals has eased substantially since 2022 H2, its level remains high compared to previous years.
The number of housing market transactions in 2023 Q3 was 11 per cent lower year on year, but rose by 10 per cent compared to the previous quarter. Subdued activity has driven down asking prices and resulted in greater bargaining potential in the market. The available supply of rental properties has been stagnant year on year. In contrast to house prices, rents continued to rise, although at a lower annual rate of 13 per cent.
In 2023 Q3, banks experienced a rise in demand for housing loans, and looking ahead the vast majority of them expect this upturn to continue, although the volume of new loan contracts still remained 41 per cent below the same period of the previous year. The termination of the Home Purchase Subsidy Scheme for Families (HPS) in cities and the more stringent eligibility conditions for the prenatal baby support loan will have the effect of reducing housing loan demand from 2024, but this effect may be offset by the HPS Plus programme, which was announced in late October and will allow couples committing to have children to access preferential-rate loans from 2024 onwards. For the rest of this year, eligible buyers may delay their purchases as a result of the introduction of HPS Plus in 2024 and the increase in rural HPS subsidy amounts next year. In Budapest, households with two children have seen improvements in their chances to buy a new home with a mortgage over the course of 2023, while in rural areas, although at a more favourable level, the ability to buy new homes with a loan has deteriorated. For households not committing to having children, the affordability of new homes has remained low in both Budapest and the countryside.
The main obstacle to production in the domestic construction industry is still insufficient demand. Employment numbers in the construction industry remain at historic highs and maintaining this level is a serious challenge for the sector. In the first three quarters of 2023, the issuance of home occupancy permits fell by one fifth versus the same prior-year period, and the number of new home completions in Budapest dropped by 29 per cent during the same period. In Budapest, the number of new homes sold remained low in the third quarter, as 41 per cent fewer were sold compared to the same quarter last year. Within new housing projects in the capital, the number of projects that already have construction permits but have not yet entered the construction and sales phases has increased, and this may serve as a growth reserve when demand starts to rise.
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