In 2022 H1, in the favourable macroeconomic environment, the housing market reached the top of its multi-year cycle. In 2022 H2 and 2023, we expect the economy to decelerate significantly: the unemployment rate may rise moderately and households’ disposable real income is also likely to decline by the end of this year. These factors point to lower housing market demand. In 2022 Q3, there are several signs implying that there has been a turnaround in the Hungarian housing market, and looking ahead we can expect further deceleration in the domestic housing market, in line with the growth prospects becoming uncertain and rising interest rates on housing loans.

The extraordinary increase in domestic housing market prices continued in 2022 H1. Based on the MNB house price index, house prices rose at an annual rate of 24.8 per cent on a national average in 2022 Q2, versus 21.4 per cent at end-2021. In nominal terms, this was the highest rate of price appreciation measured in the current 9-year housing market cycle. In provincial towns, housing prices rose more than the national average, appreciating by 31.2 per cent in annual terms, while house prices in Budapest increased by 20.4 per cent in one year. The record high price dynamics caused the overvaluation of house prices to reach a high level at 21.5 per cent on a national average. In real terms, house prices rose at a year-on-year rate of 12.8 per cent in 2022 Q2, which, however, falls short of the price increase of 16.1 per cent, the highest value recorded in the housing market cycle that started in 2014. Based on preliminary data, real annual growth in house prices is expected to decelerate significantly, to 1.7 per cent in 2022 Q3.

Demand in the Hungarian housing market fell sharply in 2022 Q3. According to our estimate, the number of transactions dropped by 22.6 per cent, and within that the annual decline in September was as high as 34.2 per cent. Experts participating in the MNB’s market intelligence consultation anticipate steadily weakening demand; according to their expectations, the low point in housing market activity may be reached in February–March 2023. They are of the view that the housing market is about to split, with properties featuring poor energy efficiency seeing prices decline, while prices of properties with good energy efficiency will stagnate or rise, and prices of newly completed dwellings will tend to increase further.

In 2022 Q2, the volume of housing loan contracts concluded by credit institutions was at a record high. Disbursements in August, however, already fell by 19 per cent in annual terms. The correction was due to the tapering of new contracts concluded under the FGS Green Home Programme (FGS GHP), demand brought forward to previous months owing to the rising interest environment and the decline in housing market activity. As a result of the continued rise in interest rates on housing loans and increasing prices in the housing market, housing affordability for households not or to a lesser extent eligible for home purchase subsidy fell to a level unseen for years. Based on the responses to the Lending Survey, banks tightened the conditions of access to housing loans in 2022 Q3, and almost all institutions saw a decline in credit demand. Looking ahead to the next six months, tightening may continue by raising the spreads, and in addition to this, the vast majority of banks anticipate a further decline in credit demand.

In 2022 Q1-Q3, the number of newly completed homes rose by 7.7 per cent due to the increase in home construction in the countryside. According to our forecast, as a result of the significantly higher number of new building permits in the latest quarters, about 23,000 new homes may be completed in 2022, which would represent annual growth of 17 per cent. On the other hand, we do not expect any further increase in the number of completions in 2023, which is in line with the anticipated economic slowdown and the decline in housing market activity observed from this year. According to developers’ expectations, the annual number of completed homes, which has been around 20,000 in recent years, may gradually fall by one half over the next two years owing to the deteriorating economic prospects and in particular to the uncertain demand for new homes. The market of new homes in Budapest shrank both on the demand and supply sides. In 2022 Q3, looking at new condominium projects under development and sales in the capital, the available supply fell by 36 per cent in year-on-year terms, due to purchases brought forward in the first half of the year. In the third quarter, the number of new homes sold in Budapest fell by 40 per cent both in year-on-year and quarter-on-quarter terms, while unsold supply was characterised by dynamic price increases. The average price per square metre of new homes in Budapest rose by 33 per cent in annual terms. Looking ahead, market participants do not anticipate any decrease in the prices of new homes, primarily due to the significant rise in construction costs observed in recent years.