Hungarian real estate market is facing troubles

Risks and inflationary side-effects are mounting in the housing market, where demand is expected to fall in the short term. This is due to more expensive credit, thus a slowdown in construction and purchase can likely be experienced. Continue reading below for more information.

The upward impact on housing prices triggered by the postponed demand during the pandemic and brought forward by rising lending rates is fading. All the while investor participation is back above 40 percent. With high inflation, some money is seeking refuge in real estate. Many investors, on the other hand, have become active sellers, as they are now cashing in on the returns they were earning on their previous home purchases. The benefits of the recent record prices are on the rise, VG reports.

Hungarian real estate market to stagnate

Tünde Tancsics is an analyst at Eltinga Real Estate Research Centre. The expert from the research centre, known for its housing market reports, explains the following. “The housing market will inevitably slow down. With demand now entering a downturn, and the growth that has been underway since 2014 is now looking all but over.”

She adds that, in nominal terms, prices will rise with inflation at 10-12 percent. But in real terms, a gradual depreciation may already be starting to take place as demand slows.

The first quarter and the previous year saw record price rises, as demand for pre-purchases postponed during the pandemic and fleeing rising lending rates hit the market at the same time. Housing purchases, mostly on credit, have been hampered by rising credit costs and steadily rising prices. After Budapest, real estate is now also significantly overvalued in rural areas,” Tünde Tancsics recalls in response to the report by the National Bank of Hungary.

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The future of housing in Hungary

The future of the Hungarian housing market will depend on interest rates, as central bank rate hikes could spill over into housing loans. If inflation continues, they could reach new heights, writes Origo.

We have already seen something similar in 2008,” the expert continues. “When interest rate rises were accompanied by very weak housing market demand. Uncertainty regarding the grave economic outlook also affects buying tendencies unfavourably. Buyers and builders are becoming more cautious as inflation is eroding real wage growth. There was a rise in the cost of building materials. The disruption to supply chains after the pandemic is now more than ever.”