fhb house price index q3 2014 · following the 2008 crisis (figure 2). although this outlier value...

FHB House Price Index Q3 2014

FHB House Price Index

Prices continued to rise FHB House Price Index increased to 162.5 in the third quarter of 2014 (Figure 1). Compared to the July-September period of 2013, house price growth was as high as 4.25 percent in both real and nominal terms. In order to prepare the current index, FHB used its own updated market information and observations, as well as all the data of the National Tax and Customs Administration (NAV) processed in 2014. In light of the most recent data, Q2 2014 value of the FHB House Price Index was changed from 158.2 to 161.34, which means that in a year-on-year comparison, prices of residential properties rose by 3.4 percent in both nominal and real terms in the second quarter. FHB House Price Index values:

Q2 2013 156.05

Q3 2013 155.86

Q4 2013 156.69

Q1 2014 154.94

Q2 2014 161.34

Q3 2014 162.48

Figure 1. FHB House Price Index (Source: FHB Index)

www.fhbindex.hu, e-mail: [email protected] 2

Figure 2. Changes of the FHB House Price Index on a quarter to quarter basis (Source: FHB Index)

In Q2 2014 the growth rate of house prices surpassed 4 percent, which was unprecedented in the time period following the 2008 crisis (Figure 2). Although this outlier value was not repeated in the third quarter, the continued moderate price increase alongside the impact the National Asset Management Company (NAMC) programme is still encouraging. From Q2 to Q3 2014, the market value of residential properties rose by 0.7 percent in nominal and 0.2 percent in real terms. Data available for 2014 show that the increase in house prices has started indeed since the end of 2013, and the downward trend lasting for years finally turned around: in the first nine months of 2014 the price of residential properties rose by 3.7 percent (4 percent in real terms).

Housing market trends

Positive outlook As mentioned in previous FHB publications, hopes for a housing market turnaround were partly prompted by encouraging statistics on new housing construction and the number of building permits issued. The numbers are still very low compared to pre-crisis levels, but the Q3 2014 year-on-year growth rate – 30 percent in the number of building permits and 26 percent for new-build homes – was remarkable (Figure 3). In both October and November, the number of building permits issued nationwide showed a 10-15 percent growth compared to the same months of the previous year. Thanks to new developments gradually picking up, the upturn is likely to continue and the number of new-build homes can continue to increase in 2015.


Figure 3. Forecast of the number of housing units built and building permits issued (Source: HCSO, seasonally adjusted data)

Figure 4. New-build houses and no. of building permits issued Figure 5. New-build houses and no. of building permits issued in Hungary (Source: HCSO) in Budapest (Source: HCSO) In the third quarter, the increase in building permits and new-build houses in Budapest exceeded the level of the national average, although the number of homes handed over in the first nine months is still only a quarter of the January to September 2008 market turnover (Figure 4-5). The housing loan market remained strong in Q3 2014. The total lending of the banking sector has steadily been over 20 billion HUF for several months. Borrowing is encouraged by the current low interest rates: average APR and average interest rate were both decreasing in the first nine months of the year, continuing into October and November. In February 2015 several mortgage loans were available with APR under 6 percent. In FHB Banks’s housing loan selection, interest rates vary on a range from 3.24 to 7.05 percent, while the range of APRs is 4.51 to 8.69 percent.


Figure 6. Interest rates and the value of disbursed residential loans (Sources: HCSO and FHB estimate)

The positive development is also reflected in the number of transactions. According to estimates by the intermediary network, residential property sales exceeded the ‘magic’ number of 100 thousand1 in 2014, unprecedented since the beginning of the crisis.

Regional developments

In some regions markets took off As pointed out in previous FHB publications, the housing market turnaround does not equally affect the different regions of Hungary. The increase in house prices is the most clearly discernible in Central Hungary and Western Transdanubia (Figure 7). In the central region the rise began in 2014: the median price of residential properties increased by 3.5 percent, buttressed by a nearly 4 percent median price growth in Budapest. In Western Transdanubia, one of the most developed regions based on per capita GDP, prices have been on the rise since 2013, and median prices increased by 12 percent compared to their 2012 level thanks also to the 7 percent surge in 2014. The turnaround is also detectable in Central Transdanubia, where median square meter prices rose in 2014. For the time being, other regions have still been stagnating, with the sole exception of Southern Transdanubia, where a notable 3.5 percent drop in average prices was measured. The key driving force of the western regions was the Lake Balaton area, with solid market performance even during the crisis.

1 Source: Duna House


Figure 7. Change in median square meter prices in the regions of Hungary (Source: FHB Index)

The promising results are, nonetheless, distorted by the NAMC programme, under which homes are usually acquired at a price lower than their original market value. Prices were likely pushed down in areas where the programme covers a higher share of residential property transactions (e.g. Szabolcs-Szatmár-Bereg, Békés, Nógrád, Borsod-Abaúj-Zemplén counties).

Prognosis

A new consolidation period began 2014 was the beginning of a new era in the history of FHB House Price Index. The Exhaustion period which began in 2008 came to an end, and house prices started to increase on the national level thanks to the performance of the strongest markets (Figure 8). This trend is expected to continue at a similar pace in 2015 based on the continued strengthening of the demand side. The segmented character of the recovery and revival of different markets will likely remain prevalent, so the current stage could be considered a two-speed consolidation period.

Figure 8. Periods of the FHB Index (Source: FHB Index)


Favourable outlook continues in 2015 The macroeconomic outlook is positive for 2015 as well. Analysts forecast an economic growth rate of over 2 percent, and a noticeable rise in real incomes in the current low inflation environment (Figure 9). Moreover, risk assessments also prognosticate continued growth, supported by Merrill Lynch’s January forecast of a nearly 4 percent growth rate.

Figure 9. Growth prospects (Source: the listed institutions)

Home Financing Subsidy for Families (HFSF) The position of first home buyers will be further improved by the new support scheme starting in the second half of the year (Chart 10). Entering into effect from July 1st, 2015, the social subsidy for housing purpose (house construction subsidy) will be replaced by housing subsidy for families. The new regulation brings several changes, which all point to a housing market upturn. Among other measures, used home purchase or the extension of the real estate with at least one additional room will be eligible for state subsidy from the middle of 2015. Furthermore, while the widespread ‘social political subsidy’ was only available for the home purchase of families with two or more children, HFSFS will also be available for families who have or plan only one child. A further advantage compared to the current system is that size categories will be decreased, and therefore smaller homes will be eligible for a larger subsidy. More energy-efficient buildings could be entitled to an even larger subsidy amount.

Figure 10. Subsidy rates in the Home Financing Subsidy for Families (HFSF) scheme


According to the decree, the square meter (net of VAT) cost of the net floor area of new build residential properties, or the net of sales tax and land price cost of the square meter cost if purchasing a used property cannot exceed HUF 300,000; or HUF 350,000 in the case of low-energy homes. In the case of used homes or housing with all modern conveniences, the maximum purchase price is HUF 350,000 per square meter. HFSF will only be available for homes purchased under a price limit set by the decree, which varies between regions and settlements.

Maximum purchase price (million HUF) Budapest towns other settlements Central Hungary 35 28 23 county seats towns other settlements Transdanubia 28 23 18 Great Plain and Northern regions 25 19 16

Due to the favourable future changes (HFSF), the housing market may be further stimulated from the middle of the year, and a further increase in demand seems plausible. An increase in the FHB House Price Index is also supported by the fact that the remaining homes the NAMC might still buy (at typically lower-than-market prices) will be significantly smaller this year. The price increase started last year may continue in 2015 as well; house prices can be 3 percent higher this year compared to 2014.

Risks surrounding the forecast Some risk factors should be mentioned regarding the favourable developments cited above. On one hand, HFSF only comes into force on 1 July, therefore home buyers may bide their time in the first half of the year. Another risk factor lies in the credit housing loan market, namely restrictions on lending, and the overwhelming workload of credit institutions. Changes in credit conditions, however, are primarily deployed to avoid excessive future debt. Banks have been pursuing a cautious lending policy after the crisis, so the new regulation can hardly break the housing market upturn, it might only restrain its pace. It is also likely that the market segmentation started during the crisis will define the market for years to come, as the naming of the two-speed consolidation period suggests. From a long-term perspective it can be said that the slowdown of the economic growth can be detrimental for the housing market as well. According to the majority of analysts, a forecast two percent economic growth is plausible based on the potential growth of the Hungarian economy.


Our services adjacent to the FHB Index The FHB House Price Index is published quarterly. Before its introduction, no other product of this kind was available in the Hungarian market. It is distinctive in terms of the measured time intervals and the quality of the underlying data, as well as its methodological foundations, which conform to international expectations. Since the introduction of the FHB Index in 2009, MNB (the Hungarian National Bank), RICS (The Royal Institute of Chartered Surveyors) EMF (European Mortgage Federation), Global Property Guide and the European Commission refer to it as a featured housing market indicator. Updates to the FHB House Price Prognosis and the FHB Agricultural Land Price Index are published regularly. The methodology behind the model rests on three pillars:

I. On the basis of international and local experience, we have identified relations between selected Hungarian macroeconomic indicators, money-market and credit market indices, transactional data of the housing market and housing prices. (We base our view of the development of the macroeconomic and financial environment primarily on the projections of the Hungarian National Bank.)

II. The FHB Banking Group has been one of the major actors among Hungarian housing market financiers for over a decade. Our operations cover the entire country, and we have access to information from the most significant real estate appraisers, which is complemented by FHB Real Estate Ltd’s own professional experience. Our forecasts, therefore, include processed and verified local assessments as well.

III. With respect to the economic crisis, we do not disregard empirical facts gained from analyses of similar depressions that have affected real estate prices so far. We have, therefore, included the international experience obtained from similar crises in our model.

Our database, which covers the entire country and the methodological development of the FHB Index make FHB able to provide help to the financial sector to fulfil the collateral re-valuation obligations under Basel II (Government Decree No 196/2007 on the Management of Credit Risk and the Calculation of Credit Risk Capital Requirement). We are proud that our service has already been ordered by a number of Hungarian banks, subsidiaries of large international financial institutions. The banks will also need to comply with the strict regulations in the future, it is, therefore, useful to apply a procedure that conforms to international standards and can also be supported by documented methodology if required by authorities. For the implementation of the modern, internal valuation methodology, it is preferable to use a model that is based on transactional data and documented methodology whereby efficient and mass re-valuation becomes possible. By using this model, credit risk capital requirement can be reduced substantially, and excess capital can thus be freed. FHB Jelzálogbank Nyrt. has been using the real estate monitoring procedure – which also meets the requirements of the modern, internal valuation methodology – since 2008.

FHB also undertakes the preparation of unique research products meeting individual needs. In these, we offer local information on apartments and lots, more detailed explanations on the extent and dynamics of our prognosis as well as the analysis of the risks surrounding the realization of the trends forecast We are pleased to give customized offers and to respond to any inquiries.

Molnár Zsolt Deputy Chief Executive Officer

FHB Ingatlan Zrt. Ingatlan értékelési Igazgatóság Telephone: +36(1)452-9208

Fax: +36(1)329-0986 Mobile: +36(30)748-3913

E-mail: [email protected]

dr. Nagy Gyula FHB Index project leader FHB Jelzálogbank Nyrt.

Telephone: +36(1)452-5930 Mobile: +36(30)964-6087

E-mail: [email protected]

, the exclusive research partner of the FHB Index

fhb house price index q3 2014 · following the 2008 crisis (figure 2). although this outlier value...

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