BRICKS & MORTAR: Hungary’s housing boom is over
Rising borrowing costs and changes in the home subsidy and energy schemes have transformed Hungary’s housing market, which is seeing a sharp contraction after years of boom since the mid-2010s. Prices have begun to retreat in certain segments after years of double-digit growth.
Monthly data from real estate broker Duna House showed that home sales in Hungary fell 32% year-on-year to 6,107 in July and by 15% from the previous month. In the January-July period, transactions fell by 40% to just over 50,000.
According to its estimates, home loan outlays plunged 42% y/y to HUF53bn in July as market-based lending has contracted due to rising borrowing costs. Many applicants were simply priced out of the market due to escalating prices, compounded by falling real wages in the first half of the year.
Changes in the government’s family subsidy scheme from next year could trigger a spike in demand before the end of 2023, but that will also mean a further decline in 2024.
The government has also narrowed eligibility for the popular zero-percent, general purpose loan (Babavaro) from January 1, 2024, due to fiscal reasons, which is also seen as denting demand as the share of state-subsidised loans accounts for half of all mortgage outlays.
Besides seasonal factors, the falling transaction volume is due to sellers’ reluctance to budge on prices, which have begun to consolidate after an unprecedented rally.
Home prices in Hungary rose at one of the fastest pace in the EU, up 3-4 fold since the market hit bottom in 2013. The Hungarian National Bank (MNB) has also pointed to the overvaluation of properties in its housing market reports over the past quarters.
Hungary’s residential construction activity remains weak, which has led to a supply crunch that has also driven up the price of newly build homes. Before the pandemic, other factors included generous government subsidies and low-interest rates and strong growth of households’ income.
The overhaul of the energy subsidy system has fuelled higher demand for energy-efficient properties, but only a fraction of homes adhere to the most stringent environmental criteria.
Demand for these properties will remain elevated, according to analysts. Older homes, mainly outside of Budapest, with poor insulation are coming on the market in large numbers and prices have come down in some cases by as much as 10%, albeit from high levels.
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