Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Housing prices fall due to rising interest rate
Apartment complexes in Seoul are seen in this photo taken on Aug. 25. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Korea's housing market has shown clear signs of entering a downturn and is highly likely to stay in the doldrums for a while amid steeply rising interest rates and a bleak outlook for an economic recovery, experts said Friday.
Housing prices here had surged for the past few years due to the side effects of botched real estate policies pursued by the former Moon Jae-in administration. The prices of apartments in Seoul particularly soared last year on a mass buying spree among young people buoyed by expectations of an additional rally.
But the sentiment took an abrupt turn for the worse from the third quarter of this year. According to data from the Korea Real Estate Board, the average apartment price in the capital city dropped by 0.11 percent in the fourth week of August, compared to a week earlier. This is a bigger drop from the 0.09 percent fall seen in the previous week.
Market experts attributed the fall to interest rate hikes and an uncertain outlook for economic rebound here. They argued that the housing market would be able to bounce back only after fears of an economic downturn are eased.
“The key point is how seriously the economy will slow down next year,” Kwon Dae-jung, a professor of real estate studies at Myongji University, said. “If Korea continues to grapple with a persistent economic slump throughout 2023, the housing market is also widely forecast to remain depressed.”
The remarks came amid growing skepticism over a near-term economic rebound here. The Bank of Korea (BOK) revised down the nation's GDP growth forecast for 2022 to 2.6 percent. But another concern is the outlook for next year when the central bank forecast GDP growth to slow to 2.1 percent.
As the BOK has reiterated its hawkish rhetoric by signaling additional rate hikes throughout 2022 amid soaring consumer prices, the housing market sentiment may end up worsening further this year, according to the expert.
The benchmark interest rate here has steeply risen to 2.5 percent only a year after the central bank hiked it for the first time since the outbreak of the COVID-19 pandemic. The market's consensus is that the key rate will rise to around 3 percent by the end of this year amid the unceasing woes of inflation.
“But if prices are stabilized possibly sometime around 2023, this bodes well for the housing market,” he said. “The macroeconomic circumstance will determine the future direction of the market.”
Other experts also left open the possibility of additional housing price falls at a time when the monetary uncertainty has not been cleared away.
“Housing demand is strongly affected by the interest rate, so the rise and fall of the rate may end up sparking high fluctuations in the housing market,” Park Jin-baek, a researcher at the Korea Research Institute for Human Settlements, said.