Risk of overvaluation on Budapest home market climbs!

The risk of overvaluation on the home market in Budapest has increased, the National Bank of Hungary (NBH) said in a biannual report released on Thursday.

“Despite the steady increase, on a national average house prices remain below the level justified by macroeconomic fundamentals, but in Budapest the risk of overvaluation has increased, and consequently careful monitoring of market developments in the capital has become even more important,” according to the Housing Market Report.

The NBH noted that price growth disparities between Budapest and other localities in the country had continued to grow. House prices rose by an annual 20.2 percent in the capital in the second quarter and were estimated to have climbed 23.9 percent in Q3. House prices in other cities were up an annual 16.3 percent in Q2, and the average per-square-metre price of a home in such communities was only 37 percent of the average in Budapest.

“All factors are pointing towards quickening demand”, the National Bank of Hungary said in the report, citing the improved financial position of households, supported by wage growth and long-term income prospects. It noted that home loan outlays rose by almost 40 percent year on year in the first half, but the volume was still at only 80 percent of the level in 2008, before the start of the global financial crisis. In international comparison, home loans as a percentage of GDP “can be viewed as quite low”, it added.

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According to the National Bank of Hungary’s report,

In Budapest, housing completions may peak in 2019. We project the completion of 7,400 new homes in 2018 and 15,700 new homes in 2019. However, supply may dwindle from 2020, owing to the termination of the preferential VAT rate, and this assumption is confirmed by the uniform opinion of market participants. We expect the completion of a total of 3,000 homes for this year. 60 per cent of projects are falling behind owing to tight capacities, here with part of the large number of planned completions in 2019 may shift to 2020.

On the whole, all of the factors in the domestic housing market point to the continuation of strong demand, while there are several factors working against a healthy upswing in housing loans. The increase in house prices is not yet excessive at the national level, but the market in Budapest must be closely monitored to ensure that the increase in house prices beyond what is justified by fundamentals is not coupled with excessive risk tolerance in lending.

Photo: Daily News Hungary – Alpár Kató

Source: MTI/NBH