Economic uncertainty, rising inflation and tighter monetary conditions led to a turning point in the housing market cycle in 2022 H2. This turnaround was reflected both in the number of sales and purchases and in lower house prices. In 2023, households’ disposable income in real terms is expected to decline due to the high inflation environment, as a result of which demand may remain slack, further cooling off the housing market.
After having risen steadily since 2014, a quarter-on-quarter decline of 1.6 per cent was registered in house prices in 2022 Q3, followed by a drop of 3.6 per cent on a national average in 2022 Q4. This caused the annual house price appreciation to slow to 10.6 per cent by the end of 2022. On a regional basis, the decrease in prices shows a heterogeneous picture, which resulted in a further widening of the gap between the prices in Budapest and the provincial settlements. In 2022 Q4, house prices in the capital, provincial towns and villages decreased by 1.1 per cent, 2.9 per cent and 6.6 per cent, respectively, on a quarterly basis. As a result of falling house prices, nominal growth in wages and the steadily tight labour market, the overvaluation of house prices compared to fundamentals has eased overall. From 2022 H2, house prices declined in an increasing number of countries in Europe. The Hungarian trends, in terms of both housing transactions and price developments, are in line with the trends observed in the region.
The number of housing market transactions realised in 2023 Q1 fell 43 per cent in year-on-year terms, which can be deemed significant even by international standards. The low activity contributed to the decline in list prices and the rise in market bargain. The increase in energy prices observed in 2022 H2 also impacted the housing market, and thus properties with low energy efficiency were hit somewhat harder by the weakening market activity. According to our estimates, the price index for residential properties with below-average gas consumption rose 1.2 per cent in 2022 Q4, while it declined by 1.3 per cent for residential properties where consumption exceeds the limit set for subsidised utility prices.
The volume of new housing loans in February 2023 fell short of that registered in February 2022 by 68 per cent, with a decline in the average loan amount and a fall in the number of loan contracts concluded as contributing factors. Based on banks’ responses to the Lending Survey, in 2023 Q1 credit institutions left the standards of housing loans unchanged and also do not plan to change these in the next half-year. In the first quarter, institutions observed a further decline in demand for housing loans, but looking ahead they already anticipate a pick-up in demand.
In 2022, 20,500 new residential properties were completed, exceeding the 2021 figure by just 3.2 per cent. However, completions in 2023 Q1 fell 20.2 per cent in an annual comparison. The 0.45 per cent annual renewal rate of the housing stock in Hungary is still low in European comparison. In addition to labour shortage, insufficient demand represents an increasing constraint for the Hungarian construction industry, and the double-digit annual increases in material and labour costs also hinder the launch of new projects. In 2022, the number of dwellings included in building permits issued rose 17 per cent. There was a decline in the case of detached houses, while home construction planned in multi-unit buildings saw significant growth. The latter was strongly influenced by the availability of the preferential, 5-per cent VAT rate on housing for a limited period. The number of dwellings included in new building permits issued in 2023 Q1 fell 37.6 per cent in year-on-year terms, while the decline was smaller for multi-unit buildings in Budapest. There was an increase in the number of dwellings in projects that obtained a building permit for new housing development in the capital, where construction and sales have not yet commenced, which could represent a growth reserve in the event of a revival in demand.