Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Housing market hit hard by rising interest rates
By Yi Whan-woo
By Yi Whan-woo
Housing prices in Korea dipped to their lowest level in more than 10 years, data showed Friday, over a steep hike in the benchmark interest rate, which is detracting would-be homeowners from borrowing money from banks.
Real estate experts forecast that housing prices have not bottomed out yet and will continue to fall through the end of 2023.
They speculate that the rate hikes are likely to go on until the first half of next year and that the effects of the hikes will last for the subsequent six months thereafter.
According to data from the Korea Real Estate Board, Friday, the average apartment price nationwide dropped by 0.23 percent this week, compared to a week earlier, when it declined by 0.20 percent
The 0.23-percent fall marked the steepest decline in the average price of an apartment, the major residential housing type in Korea, since May 7, 2012, when the board began to compile relevant data.
By region, the greater Seoul area, where more than half of the country's population lives, also saw a record fall in the average apartment price at 0.28 percent from a week earlier.
During the cited period, apartments in Seoul were sold 0.22 percent lower, while those in the rest of the country were sold 0.17 percent lower.
“The downward trend of prices in Seoul is attributed to concerns over additional rate hikes and the housing market chill,” the board wrote in a press release.
The data excludes the impact of the Bank of Korea's (BOK) latest big hike of half a percentage point, which sent the base rate to 3 percent for the first time since October 2012.
It was the fifth straight rate increase since April, including in July when the BOK took its first unprecedented big hike of 0.50 percent.
The measure was to curb higher-than-expected inflation that remains in the 5-percent range and also to prevent a possible capital flight.
“I bet the fall in housing prices will be greater when the second big hike is counted,” said Kwon Dae-jung, a real estate professor at Myongji University.
He forecast that further price falls are unavoidable because many would-be homeowners can't afford to buy a house and there are fewer buyers than homes up for sale.
“And those who can afford to buy a home will try to do so by using cash they have, not by taking out loans from the banks,” Kwon said.
He noted that the housing loan rate has grown fast and estimated it to reach a maximum of 8 percent by the end of the year.
“I reckon that the BOK will continue to increase the interest rate until the first half of 2023, and the effect of the rate hike on housing prices will last through the second half of that year,” Kwon added.