After Chuseok, the Real Estate Market Faces a 'Stronger Cold Wave'

[Asia Economy Reporter Cha Wanyong] The U.S. Federal Reserve (Fed) has signaled another giant step (0.75 percentage point interest rate hike) on the 7th (local time), a day before the Chuseok holiday, raising tension in the domestic real estate market, which is already suffering from severe trading stagnation.

With bank mortgage loan variable interest rates exceeding 6%, if the U.S. giant step affects the domestic base interest rate, the real estate market slump due to interest burden is expected to deepen further.

According to foreign media on the 12th, the U.S. central bank (Fed) is reportedly pushing for a 75bp (1bp=0.01 percentage point) increase in the base interest rate at the Federal Open Market Committee (FOMC) meeting scheduled for the 20th-21st. If implemented, the interest rate difference between Korea and the U.S. will reverse by 0.75 percentage points, and the Bank of Korea is also expected to continue its rate hike trend accordingly.

An increase in the base interest rate has a significant impact on the domestic real estate market. According to a report titled "The Impact of Liquidity on the Housing Market and Implications" by Hwang Gwanseok, a senior researcher at the Real Estate Market Research Center of the Korea Research Institute for Human Settlements, research results show that when the base interest rate rises by 1 percentage point, the apartment price fluctuation rate in Seoul falls by more than 2%.

In fact, mortgage loan interest rates, which doubled from the 2% range a year ago to over 4% this year, have dampened buying sentiment in the real estate market and led to a decline in housing prices.

According to the Ministry of Land, Infrastructure and Transport's Real Transaction Price Disclosure System, the number of apartment transactions in Seoul from January to August this year was 9,367, which is only about a quarter (26%) of 35,707 transactions during the same period last year.

The volume of pre-sale right transactions in Seoul has also sharply dropped to the lowest level ever. From January to August this year, the total number of pre-sale right (including move-in rights) transactions for Seoul apartments was 52, the lowest for the same period since statistics began in 2007. Moreover, there were zero pre-sale right resales last month, marking the first time since related statistics were compiled in 2006.

As transactions freeze, price declines are accelerating. According to a survey by the Korea Real Estate Board, Seoul apartment prices fell by 0.15% in the first week of September compared to the previous week. This is the largest drop in 9 years and 1 month since the survey on August 5, 2013 (-0.15%). Seoul apartment prices have been declining for 15 consecutive weeks since the survey on May 30 (-0.01%), with the decline margin expanding for the past 5 weeks.

Amid this real estate market slump, the pressure to raise base interest rates due to the U.S. giant step is expected to lead to an even steeper decline in housing prices going forward.

The Bank of Korea, in its "Monetary and Credit Policy Report," noted that although various upward and downward factors affecting housing prices coexist, unfavorable financing conditions such as rising loan interest rates and strengthened government loan regulations are likely to dominate for the time being, increasing downward pressure on housing prices.

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