By: The Quinnipiac University Economics Research Team, Jack French
Hungary’s Housing Market Slowed Prior to Covid
Hungary’s housing market had been on a strong run going back to 2014 but began to show signs of slowing down late last year even before the coronavirus pandemic hit the economy. In the fourth quarter of last year housing prices fell in Budapest for the first time in a decade and were flat on the national level.
Preliminary calculations from the Magyar Nemzeti Bank (MNB) show the annual growth rate of house prices continued falling into the first quarter of 2020. The total number of housing market transactions fell from 2018 to 2019 and again from 2019 to 2020.
The supply of new homes had been increasing steadily for years but will likely fall in the near future due to declining demand and construction difficulties in the wake of the coronavirus pandemic. New building permits decreased in 2019 by 4.3 percent and fell again in the first quarter of 2020 by an annualized rate of 27 percent suggesting at least a brief drop in new developments is coming soon.
…and Struggling Demand
When the pandemic hit Hungary in March, sales transactions in annual terms plummeted in Budapest and nationwide, continuing their fall into April. Rentals available in Budapest increased by 22 percent from the end of February to the end of April. Average asking prices have declined across the majority of districts in Budapest, however, suggesting that demand has not kept pace with supply.
The rise in unemployment over the last few months is forcing potential buyers to take a more cautious approach. This may prove long-lasting for a certain age group and is already observable in the corresponding drop-off in consumer confidence indicators. The government has made efforts to stabilize the market by halting some loan repayments, but stricter lending requirements at banks will make homebuying and home improvement projects more difficult.
New Homes and the Hungarian Economy
New home production plays an important role in the Hungarian economy. To put the most recent cycle in perspective, last year saw 21,100 new homes completed, more than any year since 2009 but still considerably lower than 2009’s 32,000 or so. Total new developments in 2019 represented a 0.4 percent renewal of housing stock which is low compared to previous housing cycles and low relative to other countries in the region. That increase in construction output, while not massive, significantly contributed to Hungary’s GDP growth according to the MNB.
Further underscoring the need for new buildings, 81 percent of the current housing stock was built before 1990 meaning that the houses are not energy efficient and in many cases need other upgrades as well. Refurbishing and new home construction has a multiplier effect on a number of industries that benefit from such expansion including most clearly engineering, finance, and real estate sectors.
The MNB projects new developments will decline in 2020 and 2021 but will stabilize and increase slightly by 2022. A decline in house prices in 2020 means a decline in wealth for homeowners. This can impact demand across many sectors of the economy and have a negative impact on GDP growth.
While some interested buyers are waiting out the pandemic due to health concerns and likely won’t change their approach, the government is making some efforts to stimulate demand. Proposed measures include a two year increase of the Home Purchase Subsidy (HPS) as well as lower interest rates on housing loans and making bank financing more accessible through credit guarantee institutions.
Everyone is watching for signs of a housing boom following the end of the pandemic when macroeconomic factors improve and the wait-and-see buyers bring their pent up demand to the market.
MNB source material: https://www.mnb.hu/letoltes/laka-spiaci-jelente-s-2020-ju-nius-en.pdf