FHB House Price Index Q2 2014 FHB House Price Index Property prices rise nationwide The FHB House Price Index increased to 158.2 in the second quarter of 2014 (Figure 1). House prices also rose on a Y-o-Y basis: in both nominal and real terms the growth rate was nearly 1.4 percent. In order to prepare the current index, FHB used its updated market information and own observations, as well as all data processed by the National Tax and Customs Administration (NAV) until October 2014. The FHB House Price Index values: Q1 2013 158.91 Q2 2013 156.05 Q3 2013 155.86 Q4 2013 156.69 Q1 2014 154.94 Q2 2014 158.21 Figure 1. The development of the FHB House Price Index (Source: FHB) If the current increase in the value of the FHB House Price Index remains stable throughout the next two quarters, it could result in an overall stagnation in real terms in 2014, indicating the end of the downward trend of the past few years at national level.
Figure 2. Changes of the FHB House Price Index on quarter to quarter basis (Source: FHB) Prior to the Q1 2008 peak there were only a few quarters when the index value had not increased compared to the previous quarter, and the growth rate was outstanding in several cases. After the crisis the Index value shrunk in several quarters, and the increases slackened into stagnation. The increment of the current Index exceeded 2%, which had been unprecedented in the post crisis period (Figure 2). If the trend remains positive, stagnation could likely turn into sustained growth. Housing market trends All factors point to a slow turnaround The current quarterly Index data is encouraging because other indicators also predict a turnaround. The latest Q3 2014 data on the number of new-build housing units and building permits issued also confirm this. Both the number of building constructions and the number of permits issued show an approximate 30% increase compared to the same period of 2013. Figure 3 shows that they still remain lower than the average values observed in the 15 years prior to the housing market crisis. Figure 3. Forecast of the number of housing units built and building permits issued (Source: HCSO, seasonally adjusted data) 2
In addition to the increased activity of developers, the home loans market also shows sustained growth. The steady decrease in interest rates also contributed to the strengthening of willingness to borrow. Mortgage loans with a lower than 6% APR are currently available in the market. Interest rates in FHB Bank s housing loan portfolio range between 3.44% and 7.28%, while APR rates vary between 5.16% and 8.94% (Table 1; further information on www.fhb.hu). In the second half of the year the monthly loan disbursement of the banking sector rose to HUF 20 billion. Figure 4. Interest rates and the value of disbursed home loans (Source: HCSO and FHB estimate) The favorable market development also boosted the number of transactions. According to the information of the Hungarian Central Statistical Office (HCSO) and intermediary networks, a 10-15% increase in turnover can be expected this year. Regional trends Diverging housing markets As we have emphasized our previous publications, the turnaround would not take place at the same time and pace in different regions. Therefore closely follow developments on the submarkets, and hereby present the most important lessons. Figure 5. Price development of the rings of the capital (Source: FHB estimate) 3
First we demonstrate the trends of Central Hungary during the crisis: we divided Budapest and its agglomeration into several parts (Figure 5). As we can see, this year s turnaround has the strongest impact on the Downtown. Interestingly, the unit price of Downtown properties placed on the market has surpassed unit price in Buda as a result. These two areas stand out in the capital region, while prices in Central and Outer Pest and the Inner Agglomeration lag behind, but move closely together. In the last quarter a slight increase in prices could be detected in these areas as well. The Outer Agglomeration (settlements more than 30 kilometers away from Budapest) showed the largest drop in prices over this period. In the last couple of quarters the prices of properties sold here were well below the prices of the reference year of 2008, at around 70% of this level. The following figure shows the development of the FHB House Price Index from 2000 at regional level (Figure 6). In the pre-crisis period the biggest price increase was measured in Northern Hungary, where the value of the FHB House Price Index exceeded 280, meaning that houses were sold at a nearly three times higher price at the year-end peak of 2008 than in 2000. In most regions prices were record high in late 2008 or early 2009, the only exceptions being the most developed (based on per capita GDP) Central Hungary and Western Transdanubia regions, where prices had started to fall one year before. The largest growth has thus taken place in Northern Hungary, while the most stable region throughout the entire period was the Western Transdanubian submarket. Over the past few quarters encouraging trends emerged in multiple regions. Western Transdanubia in particular had seen sustained growth, where the FHB Index value nearly reaches its pre-crisis peak. Based on the data of the last few quarters, the markets of Central Transdanubia and Central Hungary have also began to regain their impetus, but the prices are still far below the earlier peak. In the Southern Great Plain and Southern Transdanubia, prices continued to decline. Figure 6. Regional changes in prices before and after the crisis (Source: FHB estimate) As Figure 6 shows, a wide variety of paths emerged in regional price changes in the past two years. Properties involved in the program of National Asset Manager Company (NET) distort (downwards) the value of the House Price Index, as in most cases these homes are sold at a large discount. NET recently published the county division of the properties acquired, allowing the analysis of a possible negative correlation between the proportionally more affected counties and the value of the index. As Figure 7 shows, the House Price Index is generally lower in counties where the ratio of NET housing units to the housing stock is higher. For numerous households in many Eastern Hungarian counties, such as Szabolcs-Szatmár-Bereg, Békés and Nógrád, NET s program is the only way out, while the other segments of the regional housing market are already picking up. 4
Figure 7. Price development in the counties in 2012-2014 and the activity of the NET. (Source: FHB estimate) Finally, we examined the change of the Index value and median price per square meter in county seats and towns with county rights between 2008 and 2014. The four quadrants of Figure 8 shows regional centers that are still suffering from, or have barely overcome the crisis based on property price development; and also show the relative expensiveness of the local housing market. The two most populous quadrants are the bottom left and top right ones. The bottom left one represents centers with low house prices, still far from the pre-crisis peak; while the top right quadrant includes the well-performing centers with relatively high average prices. Former industrial centers (Salgótarján, Tatabánya, Dunaújváros, Miskolc) and Southern Transdanubian hubs (Pécs, Szekszárd, Kaposvár) belong to the former group; Central and Western Transdanubian towns, as well as Kecskemét, Debrecen and Budapest belong to the latter. The two Western cities, Győr and Sopron, are particularly impressive; they practically erupted in comparison to other centers, and house prices here exceed their 2008 level by 10 percentage points. Figure 8. Price levels and trends in county seats and in towns with county rights. (Source: FHB estimate) 5
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 fulfill 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 take pride in the fact 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. 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 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: molnar.zsolt@fhb.hu dr. Nagy Gyula FHB Index project leader FHB Jelzálogbank Nyrt. Telephone: +36(1)452-5930 Mobile: +36(30)964-6087 E-mail: nagy.gyula@fhb.hu, the exclusive research partner of the FHB Index 6