Active demand, rising prices and sluggish supply in the housing market
Budapest, December 3, 2021 –With the reopening of the economy, the domestic housing market has recovered significantly. House prices have increased the most in rural towns. In the second quarter of 2021, the annual growth rate of house prices in these settlements and in the capital accelerated to 18.2% and 9.1%, respectively. In the villages, however, it slowed to 7.3 percent. As price increases accelerate, the risk of house price overvaluation has increased. The supply of the domestic housing market is hampered by the general rise in material prices and the shortage of materials linked to the reopening of economies. Following the reintroduction of the preferential VAT for new housing from the start of 2021, the willingness to build housing has increased, but additional measures are needed to stimulate supply in a sustainable way. The FGS Green Home program launched by the MNB directs demand towards new environmentally friendly housing, thus encouraging developers to build “green” houses as well.
The Hungarian real estate market started 2021 with a significant recovery. After the economy reopened, the labor market began to rebound rapidly, with employment reaching an all-time high during the summer months. At the same time, real household income also increased in the second quarter. The new housing subsidies available since the start of the year have greatly contributed to stimulating the demand for housing.
Hungarian house prices have risen further. Rural towns have seen a sharp rise in prices and – after a year of stagnation – house prices in Budapest have also increased. The gap between prices in Budapest and county seats narrowed in 2021. The annual growth rate of house prices accelerated to 13.3% as a national average in the second quarter of 2021, while over the same period, the annual price dynamics increased to 9.1%. in Budapest and 18.2% in rural towns. The risk of house price overvaluation relative to fundamentals has increased on a national average, while in the capital it is once again approaching levels seen in 2018-19. The rise in prices in the real estate market has not been accompanied by the penetration of risk credit. However, the low supply of new housing relative to the level of demand is not sustainable in the long term.
In the second quarter of 2021, credit institutions entered into housing loan contracts with households for an amount of HUF 364 billion, exceeding by 81% the volume entered into during the same period of the previous year – which had been affected by the first wave of the pandemic. . The new housing assistance available from 2021 has played a key role in the historically high level of disbursements. Credit demand is expected to grow further in the second half of 2021.
On October 4, 2021, the MNB launched the FGS Green Home (GHP) program. Indirectly, the program also encourages the offer to build new residential properties that respect the environment. Members of the Housing and Real Estate Market Advisory Council (hereafter: LITT) believe that the demand for new housing has increased significantly due to BPH. They welcomed the fact that energy efficiency has emerged in the housing and finance market as a key criterion, following the launch of the program.
Supply and demand anomalies associated with the economic reopening have led to sharp increases in building material prices and material shortages globally. In Hungary, construction prices have risen well above the EU average in recent years due to issues of low capacity, competition and competitiveness. Continued and dynamic increases in housing construction costs in the future would significantly deteriorate the housing market situation. On the one hand, less investment in housing would be initiated due to falling construction profit margins and, on the other hand, the quality of the housing stock would also deteriorate due to the lack of improvements.
In the first three quarters of 2021, the number of new homes completed fell 1.7% year on year. In Budapest, the number of housing completions increased significantly during this period due to projects initially planned for 2020, but postponed to 2021. At the same time, in the countryside, the number of housing completions fell by 27.3% in the first three quarters of 2021. Following the temporary reintroduction of the preferential VAT rate on housing in early 2021, the propensity to build new housing has increased again, depending on the number of permits to build newly issued. To further increase this, measures are needed to promote sourcing in a sustainable manner. The new home market has been characterized by strong price appreciation since the second quarter, indicating weak supply relative to demand. According to our estimate, new homes that are more environmentally sustainable come with a price premium of around 3.5%. However, in the long run, the higher price can be recouped due to more efficient maintenance and more stable value, and the interest rate advantage provided by FGS GHP can compensate for the higher asking price.
BANK MAGYAR NEMZETI
Email: [email protected]