House prices fall as transactions plummet on interest rate hikes

A bird's-eye view of apartment buildings in Seoul in this file photo. Yonhap

By Lee Min-hyung

Korea's housing market has entered a major adjustment period represented by falling apartment prices as transactions plummet due to rising interest rates. According to data from the Korea Real Estate Board, the average apartment price in Seoul dropped by 0.03 percent on July 4 compared to a week earlier.

Apartment prices in the capital have been edging down for the past five weeks, according to the weekly apartment price report.

Local real estate market sentiment abruptly cooled down from the latter half of 2021 after former President Moon Jae-in and his administration introduced strict loan regulations. The set of demand-curbing policies introduced toward the end of the former administration was aimed at blocking more people from joining a buying spree of apartments in Seoul and its surrounding cities.

The former president had tried throughout his five-year term to stabilize housing prices as the market had been overheated before he stepped into office in 2017. But in the end, housing prices rose even further.

Since President Yoon Suk-yeol took office in May, soaring housing prices have shown signs of stabilizing. Even if no drastic policy shift has so far been made under the Yoon administration, housing prices not just in Seoul, but also in Gyeonggi Province, have stopped rising in recent months. Apartment prices in Gyeoggi Province also fell by 0.04 percent during the same period, according to data from the state-run organization.

As it has been only a few weeks since the housing market has starting going through this correction period, few will be able to say for sure whether housing prices in Seoul will extend bigger losses at a time when apartment supply is falling far short of demand.

But the prevalent outlook is that the market is unlikely to heat up again at such an unprecedented pace seen during the past five years, when housing prices in Seoul rose more than 35 percent on average, as major asset markets have entered a similar adjustment phase amid global monetary tightening.

Major stocks in developed markets and large-cap cryptocurrencies such as Bitcoin and Ethereum have been on a sharp decline since the U.S. Federal Reserve started its rate hikes in this March.

As the Fed and the Bank of Korea remain hawkish in their monetary policies, both authorities are set to increase their benchmark rates at least a couple of more times until the end of this year amid soaring inflation.

Experts say that housing prices have a pattern of rising during periods of falling interest rates, and vice-versa.

In the past, the prices of residential property reacted immediately to the fall in interest rates, and the impact lasted for around 15 to 18 months, according to data from the Korea Research Institute for Human Settlements. On the other hand, housing prices fell with an interval of 12 to 15 months during a period of rate hikes.

“As interest rates have a strong impact on demand in the housing market, the government should keep a close watch on the market by stepping up its monitoring after shifting monetary policies,” Park Jin-baek, a researcher at the institute, said.