As regards the factors determining demand on the housing market, employment and households’ real disposable income declined in 2020, owing to the economic impacts of the coronavirus pandemic. During the first half of the period, banks tightened credit conditions, but in the second half of the year they reported moderate easing in the Lending Survey, and demand for housing loans also increased. The volume of new housing loans did not decline compared to 2019, which was also attributable to the housing benefits and family allowance programmes. The ratio of loan-financed home purchases rose from 44 per cent to 47 per cent last year. The state subsidies significantly improve the affordability of home purchases, providing the most help to families with three children.

According to the MNB’s house price index, house prices in Hungary continued to rise on average in 2020. However, by the end of 2020 Q4 the annual nominal growth rate had decelerated significantly from 18.1 per cent seen at the end of 2019 to 6.6 per cent. By contrast, in Budapest house prices fell by 0.7 per cent on an annual basis in 2020. The pandemic resulted in varying trends on the domestic housing market. Primarily due to a sharper decline in the second quarter, the number of transactions fell 15.5 per cent nationwide, and dropped by an even larger degree of 25.1 per cent in Budapest in annual terms. Looking at resort areas, the Lake Balaton and Lake Tisza areas performed better compared to the national decline in terms of the number of transactions, while housing market activity also fell to a lesser degree in small settlements eligible for the Rural HPS. In Budapest and its agglomeration, however, the volume of sales and purchases fell to a larger degree.

Looking ahead, the expansionary effect of the new housing benefits may already be a key factor in 2021. Demand for residential real estate rose strongly in 2021 Q1, and banks also anticipate growing credit demand in the first half-year. In line with economic reopening, the unemployment rate is also likely to decline, and households’ income trends are expected to improve, which are favourable developments in terms of housing market demand.

On the supply side, 28,000 new homes were completed in 2020, representing a significant, 33.5-per cent increase versus 2019. The largest increase, i.e. roughly 52.3 per cent, was seen in new completions by natural persons in the countryside, which may have been attributable, among other things, to the expectations related to the energy regulations tightened from 1 January 2021. On the other hand, the number of new construction permits issued declined substantially, dropping by 36 per cent compared to 2019, with the largest fall of about 48 per cent, observed in Budapest. This was primarily attributable to the wait-and-see attitude linked to the regulation on brownfield home developments and cancellation of the preferential VAT rate at the end of 2019. The positive effect of the preferential, 5-per cent VAT on housing, which was reintroduced from 2021, can already be felt. In Budapest residential real estate development activity expanded at a rate of 8 per cent in the first quarter.