House Prices Escape Government Control... Possibility of Stabilization from Interest Rate Hikes and Supply Expansion

House Prices Soar Not Only in the Capital Area but Also in Provinces
Buying Sentiment Strengthens... "House Prices Will Rise Further" Forecast
However, Supply Expansion and Interest Rate Hike May Bring Stability

[Image source=Yonhap News]

Despite the government's repeated warnings about the 'peak of housing prices,' apartment prices in the Seoul metropolitan area continue to soar, leading market analysts to conclude that 'housing prices have gone beyond the government's control.' The upward trend that began in Seoul has spread beyond the metropolitan area to other regions, and buying sentiment has strengthened further, raising concerns that housing insecurity among ordinary citizens may worsen in the future.

However, the government has set a policy to further expand supply through pre-sale subscriptions and securing new housing sites, and with the possibility of interest rate hikes increasing, there are also voices suggesting that the overheated housing market may gradually stabilize.

Historic Surge in Housing Prices... Market Defies Government

According to the Korea Real Estate Board and frontline brokerage firms on the 15th, the recent rise in housing prices is rapidly spreading beyond Seoul and the metropolitan area to other regions. Apartment prices in the metropolitan area rose by 0.39% last week, marking the highest increase since statistics began in May 2012, and Seoul also maintained its highest rate in 1 year and 8 months at 0.20% for two consecutive weeks.

The upward trend outside the metropolitan area, excluding Seoul, Gyeonggi Province, and Incheon, is also notable. Apartment prices in eight provinces excluding Gyeonggi have increased their rate of rise over the past four weeks from 0.16% → 0.18% → 0.20% → 0.21% → 0.23%, and the rise in the five major metropolitan cities excluding Incheon jumped from 0.17% in mid-last month to 0.21% this week. Except for some areas like Sejong, the entire country is effectively experiencing a 'bull market.'

The government has been issuing warnings that "housing prices are overvalued" and releasing measures to expand supply to stabilize soaring housing prices, but these efforts seem to have little effect. On the contrary, the industry points out that whenever Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki or Minister of Land, Infrastructure and Transport Noh Hyung-wook warn of a peak, housing prices rise even further.

Buying sentiment is also strengthening. The nationwide apartment sales supply-demand index released by the Korea Real Estate Board rose by 0.2 points from 107.8 last week to 108.0, marking the highest level in five weeks since the first week of July (108.0). This index, calculated through frontline real estate agencies and online real estate listings, indicates stronger buying sentiment when it is above the baseline of 100.

Buying sentiment is particularly high in key areas of Incheon and Gyeonggi Province, where apartment prices are surging due to the Seoul Metropolitan Area Express Train (GTX) benefits, but most other regions including Gangwon and Chungbuk provinces also showed high levels. Only three regions?Ulsan, Daegu, and Sejong?showed indices below the baseline. The Housing Market Consumer Sentiment Index from the Korea Research Institute for Human Settlements also increased compared to the previous month, with Seoul at 145.7, the metropolitan area at 146.3, and nationwide at 139.9 as of last month. A higher index means stronger expectations for housing price increases.

[Image source=Yonhap News]

Interest Rate Hikes, Supply Expansion Outlook... Will Buying Sentiment Cool?

However, as more government measures to stabilize housing prices are expected to be announced, there is a possibility that the overheated market will gradually cool down. First, the government plans to announce this month an expansion of pre-sale subscriptions, currently applied to public housing, to include private housing and other types. Additionally, alternative sites for the new housing developments at Taereung Golf Course and Gwacheon Government Complex, which are currently facing difficulties, will soon be disclosed.

On the 11th, Deputy Prime Minister Hong held a meeting with related ministers at the Government Seoul Office to review the real estate market and said, "We are also considering expanding pre-sale subscriptions for private housing and supply volumes under the 2·4 Plan to meet the confirmed demand from actual buyers," adding, "We plan to finalize and announce this in August."

The possibility of an interest rate hike by the Bank of Korea is also steadily being discussed. There are even forecasts that the Monetary Policy Committee will raise rates at its meeting on the 26th of this month. If supply measures such as expanding pre-sale subscription volumes follow the rate hike, it is analyzed that the rapidly spreading apartment buying sentiment will calm down to some extent.

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