Housing Market Prognosis by the National Bank

In 2020, the effects of the pandemic were reflected in a decline in the number of transactions, rather than in developments in house prices. The number of transactions fell by 15.5%. In Budapest, they declined even more sharply, by 25.1%.

Although domestic house prices rose further on a national average, the annual nominal growth rate fell from 18.1% at the end of 2019 to 6.6%. In addition, the upward trend of prices observed in the past in Budapest stalled, with house prices declining by 0.7% in 2020. Despite the pandemic, there was no sustained decline in the volume of new housing loans, supporting demand in the housing market, in which government programs played a crucial role.

In 2020, the number of new completions grew substantially, by 34%, which was mainly attributable to the bringing-forward of new completions by private individuals due to the tightening of the energy efficiency regulation. The expansionary impact of new housing allowances available from 2021 is already perceivable on both the demand and supply side of the residential property market.

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 programs. The ratio of loan-financed home purchases rose from 44% to 47% 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% seen at the end of 2019 to 6.6%. By contrast, in Budapest house prices fell by 0.7% 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% nationwide, and dropped by an even larger degree of 25.1% 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 favorable developments in terms of housing market demand.