Based on the decline in the number of transactions, many expected a larger nominal decline in the domestic housing market this year. Although the KSH figures are still preliminary, meaning that the figures may change after a higher processing rate in the coming weeks, it now seems that the fall will only be in real terms and that there is no sign of a drastic fall in nominal terms - for the time being.

House price growth was 2.3% compared with the previous quarter and 8.6% year-on-year in the first quarter of 2023.

So what we see here is that in the first three months of the year, buyers were more willing to wait to put their homes on the market, but were not willing to compromise on price, which may have resulted in significantly fewer homes changing hands at similar price levels to previous quarters. By significantly fewer, it should be understood that home sales in Hungary were down 46% in January, 55% in February and 47% in March compared to the respective months of 2022.

What does this mean at real value?

As we have written before, the current housing market downturn may be unusual because stagnant prices go hand-in-hand with an extremely high inflationary environment, so we are witnessing a huge fall in real terms, even if not in nominal terms.

The MNB's latest Housing Market Report shows that the overvaluation of the housing market in Hungary is steadily declining. According to the central bank's calculations, the overvaluation of house prices relative to real economic fundamentals declined substantially in the third and fourth quarters of 2022, both in Hungary and in Budapest, mainly due to a significant rise in inflation and a decline in real house prices, in addition to favourable labour market developments.

This may have continued in the first quarter of this year, with stagnating prices coupled with a still extremely high inflationary environment, so if the lines below were to continue, house prices would presumably now be around the current average relative to market fundamentals.

What could be ahead in the remainder of the year?

According to property sellers, it is possible that we will once again see a decline in nominal house prices in the second quarter. Low transaction numbers, however, still suggest that most market participants, both sellers and buyers, are taking a wait-and-see approach.

In the coming months, however, the phasing out of family allowances could give a noticeable boost to demand for early purchases. One of the questions for 2024 and beyond is when lending interest rates will fall back to levels that will attract people buying property on credit back onto the market. Another is whether some new form of government support will be introduced to boost the current low demand.

It is still expected that the current trend will continue, i.e. with lower demand and stagnating prices in nominal terms, it is high inflation that will bring about a correction in the market, driving prices down in real terms.