The Shockwave of US Giant Step... Growing Scream in the Domestic Real Estate Market

Amid a continued transaction freeze due to interest rate hikes and concerns over peak housing prices, the decline in apartment prices in the Seoul metropolitan area is accelerating. The buying sentiment that had revived after the presidential election also weakened last month. As interest rate hikes in Korea are inevitable following the U.S. Federal Reserve's rate increases, the real estate market is expected to contract further.

According to the "May Real Estate Market Consumer Sentiment Survey" by the Korea Research Institute for Human Settlements on the 16th, the nationwide housing sales market consumer sentiment index fell by 6.6 points (p) to 109.4 last month from 116.0 in the previous month. Although there had been a three-month consecutive rise until April this year, it turned downward last month. Seoul's housing sales sentiment index was 112.9 last month, down 10.8p from 123.7 in the previous month, ending a three-month upward trend. The housing sales sentiment, which had shown signs of recovery due to expectations of deregulation after the presidential election, has reversed again. Furthermore, according to the "May Nationwide Housing Price Trend Survey" released by the Korea Real Estate Board, apartment sales prices in the Seoul metropolitan area fell by 0.10% last month compared to the previous month. This decline more than doubled compared to April's -0.04%. Nationwide apartment sales prices also shifted from being flat in April to a 0.05% decrease last month.

In this situation, the ongoing interest rate hikes are expected to return as a boomerang of interest payment burdens. Since the Bank of Korea raised the base interest rate four times starting from August last year, market loan interest rates have surged, causing cries of distress from the so-called "Younggeul" (borrowing to the limit) borrowers across the country. Real estate information company Zigbang released a study showing that when the mortgage loan interest rate is around 7% per annum, the monthly repayment for purchasing a medium-sized apartment of 84㎡ reaches 2.91 million KRW. Considering that the disposable income of urban worker households last year was 4,189,000 KRW, this means that about 62% of the average income must be spent on debt repayment, far exceeding half of the income.

As of the 13th, the mixed-type mortgage loan interest rates at the four major commercial banks range from 4.33% to 6.8%, with the highest rate approaching 7%. Following the U.S. Federal Open Market Committee's (FOMC) recent "Giant Step" (a 0.75 percentage point increase in the base rate), some predict that the era of 8% interest rates is only a matter of time. In particular, excessive loan repayment burdens relative to income levels raise concerns not only about worsening household finances but also about a decline in apartment purchasing power and buyer sentiment. A decrease in buying demand, a deepening transaction freeze, and a resulting weakness in apartment prices are likely to continue for the time being. Kim Deok-rye, head of policy research at the Korea Housing Industry Research Institute, forecasted, "This year, the combined effects of continued loan interest rate increases, economic slowdown, and an increase in listings due to the temporary exclusion of capital gains tax surcharges will intensify downward pressure on housing prices."

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