The continuous price increases in the housing market which had already lasted for eight years broke another record in 2021. This was primarily due to the outstanding price increase in the countryside. Based on the MNB house price index, in the fourth quarter of 2021 house prices rose at an annual rate of 21.4 on a national average, being a record high in the current cycle, compared to 8.9 per cent measured a year earlier. In Budapest, house prices were 11.3 per cent higher at the end of 2021 compared to a year before, while provincial towns also recorded the highest annual house price growth in the current housing cycle, at 25.0 per cent. Based on preliminary data provided by real estate agents, in the first quarter of 2022 further extraordinary price increases can be observed, presumably also due to the rising inflation and purchases brought forward due to the rising interest rate environment. Due to the record high increase in housing market prices, according to our estimate house price overvaluation on a national average rose to a historic high of 18 per cent. Overvaluation in Budapest has been high for several years and at present it stands at 15 per cent.

Employment remains at a historic high and domestic unemployment is low by international standards, which, together with the growth in 2021 and further expected expansion in the first quarter of this year, will support housing demand. Looking ahead, however, the negative effects and risks of the Russo-Ukrainian war impair labour market prospects through higher production costs and a slowdown in output.

According to our estimate 168,000 housing market transactions were realised in 2021, which is a significant – 15.6 per cent – increase compared 2020, affected by the pandemic, but still falls short of the 2019 figures. The number of sale and purchase transactions increased in Budapest and in the county seats last year, and this growth continued in the first quarter as well, especially in Budapest. The high number of transactions and buoyant lending were also materially supported by the new housing subsidies starting from the beginning of 2021. The volume of newly disbursed housing loans increased by 40 per cent in the fourth quarter compared to the same period in 2019 – not yet affected by the pandemic – and half of the completed housing transactions were realised through housing loans. Within housing loan applications, the volume of loans applied for the purchase and construction of new homes increased, with the Funding for Growth Scheme (FGS) Green Home Programme launched in October playing a significant role. The increasing disbursement of subsidised and central bank refinanced loans has led to a widening of the gap between transaction and customer interest rates, and as a result, despite the rising interest rate environment, there is still only a moderate increase in the average interest rate on housing loans until March 2022. Looking ahead, if the interest rates on housing loans continue to rise, the affordability of house purchase on credit may deteriorate significantly. In the first quarter of 2022, even under unchanged credit conditions, banks observed a pick-up in demand for housing loans, while half of the banks expect demand for loans to drop in the second and third quarters.

In 2021, around 20,000 new residential properties received occupancy permits, which is a significant – 29.5 per cent – decline, in annual terms. In the first quarter of 2022, the number of newly built homes fell again. The annual renewal rate of residential properties in Hungary is 0.4 per cent, which is low in a European comparison. The decline in home constructions was mainly attributable to the large number of family house constructions brought forward to 2020 due to the expected tightening of energy rules. In 2021, the number of dwellings built by natural persons in the countryside fell by 48.7 per cent year-on-year. On the other hand, the number of new building permits issued increased by 32.7 per cent over the year, probably mainly due to the reintroduction of the reduced VAT for buildings that obtained building permits before the end of 2022. Overall, the supply of new homes cannot keep up with demand. Tight supply is also indicated by the fact that the number of unsold homes in the Budapest market in the first quarter of 2022 was lower by 27 per cent than a year earlier.

The adjustment of the supply side of the housing market is hampered by several discordant factors, which are expected to continue to deteriorate this year. In 2021, the largest increase in home construction costs was registered in Hungary among EU Member States. In 2022, the war has led to a repeated rise in raw material and energy prices as well as increased supply chain problems, which will increase development costs. Looking ahead, further price increases are expected for construction materials, which could lead to additional delays in the completion of some projects. The uncertainty caused by the war may also reduce demand in the construction sector, where a fall in public sector orders may play a major role. According to market participants, the uncertain regulatory environment may lead to a significant drop in housing investments in the short term, which will have a negative impact on supply over the next two years, while based on the Lending Survey a substantial tightening of the conditions for residential property financing loans may be expected in the next six months.