Despite Flooded Listings, 'Stagnation'... Now It's the Buyer's Time

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Housing Consumer Sentiment Index in August at 89.9

The Lowest Figure Since Statistics Began

If the Bank of Korea Raises Interest Rates Further

Downward Trend Expected to Continue Until the First Half of Next Year

[Asia Economy Reporters Minyoung Kim, Dongpyo Kim] Housing market sentiment is plunging to its worst level. Due to interest rate hikes, increased economic uncertainty, and disappointment over the new government's level of deregulation, buying demand has shrunk, causing nationwide housing prices to freeze at levels seen during the 2009 global financial crisis. Experts believe that as the U.S., facing an 'inflation shock,' is likely to implement an ultra step (a 1.0 percentage point increase in the benchmark interest rate) this month, if the Bank of Korea follows with additional rate hikes, the housing market's downward trend will continue until the first half of next year.

According to the Korea Research Institute for Human Settlements on the 16th, the nationwide housing market consumer sentiment index for August was 89.9, down 5.3 points from last month’s 95.2. This marks the fourth consecutive month of decline and is the lowest figure since the institute began compiling related statistics in March 2011. The real estate consumer sentiment index is derived from surveys conducted with real estate agencies and general households, quantifying the market situation on a scale from 0 to 200. Scores below 95 indicate a declining phase, 95 to 114 a stable phase, and 115 or above an ascending phase.

The consumer sentiment index for the metropolitan area housing market also fell for the second consecutive month, dropping 5.1 points from last month’s 92.7 to 87.6. In particular, Seoul decreased by 6.6 points from 94.1 to 87.5, and Gyeonggi Province dropped by 4.4 points from 92.4 to 88.0, both maintaining a declining phase for two months in a row. The indices for Seoul, Gyeonggi, and the metropolitan area last month were all the lowest since the institute began its surveys.

Incheon, which led the housing price rise last year, also remained in a declining phase for the third consecutive month, falling 4.8 points from 90.5 to 85.7. In Incheon’s case, the consumer sentiment index for the housing market dropped to its lowest level in 11 years and 2 months since June 2011 (73.7).

Seo Jin-hyung, co-representative of the Fair Housing Forum and professor at Gyeongin Women's University, said, "The possibility of further interest rate hikes, economic uncertainty, and loan regulation measures have collectively caused buying demand to completely disappear," adding, "Unless the so-called three no-policies?restrictions on buying, selling, and holding?are lifted, it will be difficult for the cooled housing market to revive."

The vicious cycle of worsening buying sentiment → transaction cliff → price decline continues. According to the Korea Real Estate Board’s August nationwide housing price trend survey, the comprehensive housing sales price (including apartments, detached houses, and row houses) nationwide recorded a decline of -0.29%, a larger drop than the previous month’s -0.08%. This is the largest drop in 13 years and 7 months since January 2009 (-0.55%) during the global financial crisis. Both the metropolitan area (-0.14% → -0.40%) and provincial areas (-0.01% → -0.18%) showed declines.

Seoul’s comprehensive housing sales price fell by 0.15% from the previous month to -0.24%, with all 25 districts declining simultaneously. This is the largest drop in 9 years and 1 month since August 2013 (-0.41%). Seoul housing prices had shown either increases or stability since a slight drop of 0.01% in March this year, fueled by expectations of deregulation following the presidential election, but due to interest rate hikes and economic recession effects, prices turned downward again last month after four months and have declined for two consecutive months.

Concerns over interest rate hikes and falling housing prices are manifesting as an unprecedented transaction cliff. According to the Seoul Real Estate Information Plaza, apartment transactions in Seoul in July totaled 641 cases, the lowest since records began in 2006. Compared to the same month last year (4,679 cases), this is about one-seventh the volume. Although the reporting deadline has not yet passed, August transactions have so far only reached 521 cases, indicating a continuing transaction cliff. Looking at cumulative figures from January to July, transactions have sharply decreased from 30,513 cases last year to 8,554 cases this year.

Experts predict that as long as the current interest rate hike trend, which is influencing housing prices, continues, the downward trend in the housing market will persist until the first half of next year. This is because the U.S. Federal Reserve is highly likely to implement an ultra step this month due to the 'inflation shock.' Watching the U.S. moves closely, the possibility of a giant step (a 0.75 percentage point increase) by the Bank of Korea is emerging, suggesting that the impact of interest rate shocks on the real estate market will intensify.

Lim Byung-chul, chief researcher at R114, said, "Although the Bank of Korea has already signaled an interest rate hike, considering recent U.S. economic conditions, the increase could be higher than expected," adding, "If the benchmark interest rate rises further, the current transaction cliff will deepen, and the downward price adjustment trend is likely to continue at least until the first half of next year."

However, there is still a cautious stance on concluding that housing prices have entered a major downward phase. Since housing supply and interest rates are the main factors determining housing prices, if supply remains at the current level, the price trend should be observed when interest rates decrease.

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