"House Prices Will Fall Further"... Housing Sentiment Index Hits Lowest in 1 Year and 9 Months

Bank of Korea February Consumer Sentiment Survey Released
Housing Price Expectation Index Falls 3 Points to 97
Declines for 6 Consecutive Months... Increased Burden from Interest Rate Hikes
Consumer Sentiment Also Turns Down Amid Omicron Spread

View of the Gangnam and Yongsan areas of Seoul from the 'Seoul Sky' observatory at Lotte World Tower in Jamsil, Songpa-gu, Seoul.
[Image source=Yonhap News]

As interest rates rise and household loan regulations continue, the housing sentiment index has fallen below the baseline of 100 for the first time in 1 year and 9 months. This means that the number of households expecting house prices to decline has increased.

According to the 'February Consumer Sentiment Survey' released by the Bank of Korea on the 22nd, the housing price outlook index for this month was 97, down 3 points from the previous month. This index has been declining for six consecutive months since September last year. It is also the first time since May 2020 (96) that it has fallen below the baseline of 100. A housing price outlook index above 100 means that more households expect house prices to rise in one year than those who do not.

The index reached an all-time high of 132 in December 2020, when house prices surged sharply, but has stabilized since mid-last year. This is because the Bank of Korea raised interest rates three times consecutively until last month, following increases in August and November last year, increasing the financial burden on buyers.

Additionally, the strengthening of loan regulations by financial authorities, increased tax burdens, and policies to expand supply have combined to freeze buyer sentiment. This is a complete reversal compared to early last year when 'young people borrowing to the max (Yeongkkeul)' panic buying was popular, especially among those in their 20s and 30s, due to expectations of rising house prices. The rise in average mortgage loan interest rates at commercial banks, in line with the base rate hike trend, is also interpreted as having an impact.

In fact, the apartment sales market in Seoul and other metropolitan areas has entered an adjustment phase, with transactions mainly involving urgent sales where prices have been lowered by tens of millions of won or more. According to last week's weekly apartment price trend report by the Korea Real Estate Board, apartment sale prices fell in 22 out of 25 districts in Seoul, excluding Seocho-gu, Seongdong-gu, and Jungnang-gu.

In particular, the downward adjustment trend is spreading even in major Gangnam area complexes that had maintained price increases due to the 'smart one house' craze, with cases emerging where prices are sold for several hundred million won less than the previous highest price. The head of A Real Estate Agency in Yeongdeungpo-gu said, "Due to loan regulations and interest rate hikes, buyers are still strongly in a wait-and-see mood," adding, "Unless it is an urgent sale, transactions do not go well."

Along with this, the Consumer Confidence Index (CCSI) also fell by 1.3 points from the previous month to 103.1, turning downward after one month. This index rose by 0.6 points last month due to expectations of 'gradual daily recovery (With Corona),' but has recently stalled again as Omicron cases have surged explosively. Among the six components of the CCSI, five items declined: Current Living Conditions CSI (90), Household Income Outlook (99), Consumption Expenditure Outlook (110), Current Business Conditions Index (75), and Future Business Conditions Index (91). Among these, household income outlook and consumption expenditure outlook are at historic lows.

Hwang Hee-jin, team leader of the Statistics Survey Team at the Bank of Korea's Economic Statistics Bureau, explained, "Because the spread of Omicron is so rapid, the consumer sentiment index seems to have been affected," adding, "Although there is a contraction due to the quarantine situation, since social distancing measures are not being fully strengthened and the risk of Omicron is perceived as low, the index did not fall as much as the increase in confirmed cases."

On the other hand, inflation perception and expected inflation rate each rose by 0.1 percentage points from the previous month to 2.8% and 2.7%, respectively. This is due to the recent rise in international oil prices and growing global inflation concerns amid heightened tensions between Russia and Ukraine. The response proportions for major items expected to affect consumer price increases over the next year were petroleum products (61.0%), agricultural, livestock, and fishery products (40.6%), and public utility charges (37.5%), in that order.

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