The macroeconomic fundamentals underlying housing market developments improved somewhat from the end of 2023 and triggered an upswing in the domestic market. Employment was at a historical high in 2023 Q4 and, along with a double-digit increase in gross wages, real incomes returned to a growth path as inflation was curbed. Housing market activity is being driven by improving consumer confidence, better lending conditions and the renewed housing subsidies available from 2024, which added momentum in the first months of 2024 as well. Moreover, economic output expanded again in 2024 Q1, both in year-on-year and quarter-on-quarter terms.
By end-2023, annual housing price dynamics in Hungary rose to a nominal rate of 5.8 per cent, while in real terms a decrease of 1.8 per cent was still recorded. In the first quarter, the rate of nominal price appreciation may have accelerated further to 7.2 per cent. Nominal house prices rose by 3.4 per cent in Budapest, 5.7 per cent in other cities and 7.5 per cent in villages in this period. Incomes increased faster than house prices in 2023, bringing down the house price-to-income ratio by 4.1 per cent in Budapest and by 2.5 per cent overall in the domestic market, compared to 2022 Q4. Overpricing in the house market relative to the macroeconomic fundamentals stagnated at a significantly lower level compared to the 2022 peak, at about 12 per cent as a national average during the past year.
The total number of transactions in the housing market was extremely low in 2023, in particular in the first half of the year, falling short of the figure for 2022 by 21 per cent. Housing market turnover already began to recover in late 2023, and 2024 Q1 saw a year-on-year increase of 30 per cent in the number of sale transactions at the national level, while typical negotiated discount rates dropped to 3.0 per cent in Budapest and 4.8 per cent in other towns and villages by the end of 2024 Q1. Rents rose by 12.6 per cent, exceeding house prices, and thus the annual rental yield also increased compared to the same period of the previous year.
The upswing in housing market turnover was accompanied by an expansion in housing loans, as the volume of housing loan contracts concluded in the first two months of 2024 more than doubled year-on-year. Demand for loans was driven by improving economic prospects in the wake of disinflationary developments, lower lending rates and renewed housing subsidies. The latter also contributed to a sharp increase in average loan amounts, as the average contractual amount of HPS Plus loan agreements concluded in the first quarter was HUF 25.4 million, significantly more than the HUF 15 million average amount of loans for pre-owned homes excluding the HPS Plus facility in February 2024. The Lending Survey shows that the banks left their housing loan conditions unchanged in 2024 Q1 as well, but some applied the higher LTV limit to first home buyers. Looking ahead, the banks expect a further increase in housing loan demand with unchanged credit conditions. In terms volume, a total of 83 per cent of all housing loan contracts signed in February 2024 were concluded by the banks below the APR ceiling of 7.3 per cent. Introduction of the HPS Plus facility significantly improves the affordability of homes, particularly in the higher price category, including pre-owned homes in Budapest. However, housing has become considerably less affordable for families with two children, who are not planning to have a third.
Insufficient demand continues to be the main limiting factor regarding the output of domestic construction companies; at the same time, the number of people employed in the construction industry remained at a historical high in 2023, although maintaining this level represents a significant challenge for the sector. Home construction costs continued to increase at an outstanding – albeit decelerating – rate in comparison to the European Union. Occupancy permits were issued for 18,600 newly built homes in 2023, 9 per cent less than in the preceding year and equivalent to 0.41 per cent of the total housing stock recorded at end-2022. The renewal rate is thus significantly lower in Hungary than the average rate of 1.05 per cent recorded in other countries of the region. The number of building permits issued dropped by 39 per cent year-on-year. In 2024 Q1, the year-on-year decrease in the number of homes completed and building permits obtained continued. The deadlines related to the application of the reduced 5-per cent housing VAT have been extended by another two years, which may stimulate the expansion of supply over the short term. The number of apartments being constructed in condominium projects in Budapest in 2024 Q1 was somewhat lower in year-on-year terms. Turnover in the Budapest new homes market reflected increased activity in 2024 Q1, as 1,307 new condominium flats were sold in Budapest, 84 per cent more than sales at the lowest point in the same prior-year period. An outstanding number of newly built homes were on offer in the market to meet the growing demand, as a result of which the number of homes still available for buyers in Budapest increased somewhat on a year-on-year basis, while in the countryside the decrease in sales resulted in growth of 7 per cent in the available supply. A total of 23 per cent of the homes available in Budapest were repriced, 78 per cent of which were priced up by developer companies. The average price per square metre of newly constructed homes in Budapest rose by 2.8 per cent year-on-year, to HUF 1.47 million by the end of 2024 Q1.