Budapest house price surge being closely monitored

Between the first quarter of 2014 and the first quarter of 2016 the Budapest house prices jumped by more than 50 percent, while properties in the countryside rose by 20 percent

House prices in Budapest have surged by 50 percent in the past two years, warranting a close monitoring of the housing market, the National Bank of Hungary has announced.

Reuters reports that the central bank said in its new report on the housing market that an improvement in households' finances and low interest rates would continue to support demand for housing, and prices were expected to rise further, albeit at a slightly slower rate.

Record low interest rates and an increase in services such as Airbnb are feeding a housing frenzy elsewhere in Central Europe as well, such as in the Czech Republic, where the central bank has also raised concerns.

Between the first quarter of 2014 and the first quarter of 2016 the Budapest house price index jumped more than 50 percent, while the index for cities in the countryside rose 20 percent.

Many Hungarians have invested in apartments in Budapest to rent them out, as they can earn higher returns than on other types of investments.

"Looking at the national average, the appreciation of house prices is not considered to be excessive," Gergely Fabian, a director of the central bank, told a news conference.

"However, trends especially in the capital city should be followed closely ... as the dynamics (of price growth) was extremely strong in the past two years," he added. Fabian said looking at housing prices in real terms, they were still not higher than the level between 2002 and 2007, but the surge in prices warranted caution.

As prices surge, households could be forced to take out much bigger loans to buy a home, and this could trigger a negative spiral, he said.

"On the surface we do not see problems as yet, but risks can build up very quickly in the real estate market," he said.

The central bank's national house price index, which the bank launched on Wednesday and will publish every quarter, showed a 3.8 percent rise in the first quarter alone.

The bank said it projected a 9 percent increase in nominal housing prices in the third quarter in year-on-year terms.

"In the first half of 2016, the housing market recovery was coupled with a significant credit expansion, and the volume of newly granted loans rose by 47 percent in year on year terms," it said. The bank said the volume of new housing loans should not be considered excessive at this point.