"The Problem Is Supply"... What Moved Apartment Prices Over 10 Years Was 'Suguimbalunghyeong' (Supply-Demand Imbalance)

Analysis by Housing Industry Research Institute Shows Greater Impact Than Economic Growth Rate and Interest Rate Changes
Housing Prices Nationwide Expected to Rise This Year Due to Supply Shortage

View of apartments in Songpa and Gangnam areas from Maebongsan Mountain in Seoul [Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] An analysis has revealed that the biggest factor influencing the rise and fall of apartment prices nationwide over the past decade was 'supply-demand imbalance.' In other words, how well apartment supply kept up with demand was the most significant determinant of housing prices.

According to the Korea Housing Industry Research Institute on the 3rd, an analysis of factors affecting housing price fluctuations over the past 10 years showed that apartment sale prices were most influenced by supply-demand imbalance. The nationwide housing price influencing factors (correlation coefficients) were supply-demand (-0.38), economic growth rate (0.28), increase rate of mortgage loans (0.25), and interest rate changes (-0.13), in that order. A negative (-) correlation coefficient means that when the influencing factor rises, prices fall, and when the factor falls, prices rise, indicating an inverse correlation.

In particular, in Seoul, the order was supply-demand (-0.58), economic growth rate (0.28), mortgage loan increase rate (0.13), and interest rate changes (-0.01), showing that the supply-demand factor had an even greater impact.

Until now, it was generally assumed that supply-demand imbalance would significantly affect price fluctuations, but it was difficult to compare supply and demand at specific points in time with concrete figures, so the degree of price impact from supply-demand factors could not be determined. Accordingly, the Korea Housing Industry Research Institute estimated the apartment supply-demand index by considering the supply in a specific year as the apartment pre-sale volume, and the increase in demand as the net increase in the housing market active population, calculated by subtracting deaths from the population entering age 30 in that year, and analyzed the influencing factors based on this.

The institute explained, "As a result, the supply-demand index was found to be the most significant factor affecting apartment prices nationwide, while the impact of interest rate changes was minimal."

Apartment jeonse (long-term lease) prices were most influenced by the 'economic growth rate.' The correlation coefficients were economic growth rate (0.36), interest rate changes (-0.33), supply-demand (-0.31), and mortgage loan increase rate (0.20), in descending order. The institute stated, "Unlike sales prices, jeonse prices are relatively more affected by interest rate changes because interest rates reflect the characteristics of the rental market, influencing landlords' opportunity costs and the conversion rate between monthly rent and jeonse."

Meanwhile, the institute projected that housing prices will rise by 1.5% nationwide, 1.4% in the metropolitan area, and 1.5% in Seoul this year. Jeonse prices are expected to increase by 3.1% nationwide, 3.3% in the metropolitan area, and 3.6% in Seoul. The institute diagnosed, "With low prospects for improving the accumulated supply shortage and the government's continued stance on strengthening regulations, sales and monthly-jeonse prices will maintain an upward trend."

Additionally, from the perspective of developers, housing business conditions are expected to worsen compared to this year due to a shortage of available land and excessive financial and pre-sale price regulations, but the pre-sale market for projects that can issue resident recruitment announcements is expected to continue thriving, the institute added.

This content was produced with the assistance of AI translation services.