Expected development of the real estate market in 2022

13/04/2023

The expected development of the (Budapest and Pest counties) real estate market in 2022

April 03, 2022

In recent weeks, many people have contacted me wondering how the real estate market will develop with the outbreak of the Russian-Ukrainian war, and what effect this will have on real estate prices. That is why I decided to summarize in my blog what is worth considering if you are thinking about buying or selling a home in the current situation.

Development of house prices between 2014 and 2019

As I always emphasize, the most important thing that determines prices is supply and demand. Economic effects actually have an influence on one or the other, as we have experienced in recent years. Due to the amazing abundance of money, all asset classes worldwide reached highs, and the real estate market also soared because there was something to spend on.

What incentives have had a positive effect on the real estate market in recent years?

The low interest rate environment, with a loan of up to 3%;
the flood of state subsidies (5% VAT, family home creation discount, baby loan, green loan), and
low inflation.

Although real estate prices traditionally move much more slowly, since 2015, due to the favorable environment, we have experienced a 10% annual price increase, which is also unique globally. It is true that, in the meantime, the numerous state subsidies had a distorting effect on the market, resulting in a complete drop in the price of newly built apartments.

Development of real estate prices after 2019

The change in the market environment is not only attributable to the Russian-Ukrainian war, the process actually started earlier. At the end of the summer of 2019, a significant slowdown began with falling demand, and then with the outbreak of the coronavirus epidemic, a clear recession began with a drop in house prices.

After a break of a few months, however, explosive demand began, with a spectacular outflow towards the countryside. The supply level became considerably low, as the demand appeared en masse in the direction of the Budapest (and big city) agglomeration and Lake Balaton, which brought with it an amazing price increase. In my own practice, I have experienced, for example, a 30% increase in the price per square meter!

The current situation of the Hungarian real estate market

What factors can affect the development of the real estate market at the moment?

Money output decreased, the USA practically stopped this process;
an interest rate increase has come into effect, which makes it more difficult to repay loans;
state subsidies expire this year (although this may change after the elections);
stricter banking conditions have come into effect since covid; as well as
inflation increased significantly, along with a steady rise in wages.

These processes have already started regardless of the Ukrainian-Russian situation, but the war situation caused confusion in the market, and it seems that everyone is waiting. Uncertainty leads to caution, we consume less and hope that the fighting will not spread and the warfare will end.

My personal experience is that the supply of used apartments has dropped sharply, such properties hardly appear on the market. It is possible that there are sales and purchases taking place, but the owners do not advertise on the known platforms.

In fact, those who would not only sell, but also buy, are in trouble now, because even though we sell our property at a super price, there is no offer to choose from. The limited selection leads to price increases, as the sellers are in a great bargaining position, but there is also a clear feeling of caution due to the choices.

When will the real estate market crash? Do not panic!

Several - often contradictory - analyzes have also been published in recent weeks, dissecting what can be expected on the real estate market in the near future. Is the real estate market crashing? Influencer guesses with manipulative headlines that scare the reader. Currently, the processes are not driven by economic mechanisms, but by the mood - and unfortunately, most people do not read only the titles of the articles, from which they draw hasty conclusions.

As I mentioned earlier, there are actually no sudden swings in the normal functioning of the real estate market: it moves slowly. It is also encouraging to see that after the 2008 crisis, property prices surprisingly fell by only 6% nationally and by 1.5% in Budapest on an annual basis until 2014, which is not a significant change compared to the scale of the crisis. Based on this, it seems that real estate in Budapest can be a valuable investment in the long term

Development of the real estate market: what can be expected this year?

If the war continues, we won't be interested in real estate prices in the least, because staying alive will occupy our attention. But whether the war escalates or not, the world will definitely change, as it has already happened due to the coronavirus epidemic, as a result of which, for example, employers have become much more lenient regarding the home office.

What effects can be expected in the near future?

Rising interest rates lead to higher repayments, which is likely to reduce the desire to borrow. The current 4.5% can still be said to be favorable if we consider that after 2009 there were bank interest rates above 10%, so we will reach the forecasted 6-7% interest rate by the end of the year.
The ability of banks to grant loans also becomes more restrained due to the tightening conditions, which further stifles the market.
Unemployment may rise as economic growth declines.
I think that there will be subsidies that will cease, or the conditions of the applications will change in an unfavorable direction.

Real estate market forecast - subjectively

At the moment, there is a general fear in the market, so we have to think carefully about what to invest our existing capital in.

It is not worth leaving the money in the bank.
The government bond depends on how much we trust the government.
The stock market is currently in deep flight.
The crypto market is too volatile and unpredictable.

In my opinion, the real estate market in Budapest is nearing its peak, so it may still be worth taking advantage of the opportunities if you are not thinking of housing, but of investment, and you find an apartment with a great location. Of course, real estate is a long-term (8+ years) investment.

Over the next few months, I think we can expect prices to rise further, followed by a slowdown, which could actually create a normal market environment, ideally with supply and demand balanced.

Real estate market tips without a crystal ball - questions and answers

I'm neither a fortune teller nor an economic analyst, so of course I don't know what the future will bring either. But unless there's a world war, I'm not afraid of an overnight real estate crash, as that hasn't happened since the 2008 crisis.

Can we expect a reversal, i.e. a decrease in prices??

This year in Budapest, it is not expected, rather stagnation or a slight increase is expected in the second half of the year.

What should we do if we still want to buy?

Buda is always a good investment, but it is also worth buying a property in popular districts such as the 5th, 9th or 13th. Since there are hardly any apartment ads, it is worth investigating if you are serious about buying: you need to get to know the selected neighborhood, ring the bell , to ask questions so that your relationships develop.

It is important to think carefully about your goal, because your individual strategy depends on it. Under no circumstances should you invest in an artificially inflated, overpriced property, only make a decision after careful consideration in every situation. As a seller, however, you can do very well now if you have room for your money, and you don't have to move on to the next apartment: with a good marketing strategy, you can make a good deal even with an average apartment in a good neighborhood!