"House Price Decline Range: Sejong > Daegu > Daejeon > Incheon... Rising Downward Pressure in Rapidly Increasing Areas"

Han Eun, Regional Housing Market Trends and Risk Assessment

[Asia Economy Reporter Seo So-jeong] Recently, as the housing market shows differentiated trends by region such as the metropolitan area and non-metropolitan areas, the price decline from the peak was largest in Sejong, Daegu, and Daejeon, respectively. With the downside risk of housing prices rapidly increasing due to future interest rate hikes, it is expected that housing prices in these areas could fall more sharply.

The Bank of Korea stated in its 'Regional Economic Report' published on the 28th, through an analysis titled 'Regional Housing Market Trends and Risk Assessment,' that "downside factors in the housing market, such as housing price overvaluation and worsening borrowing conditions, outweigh upside factors like supply shortages, with some areas in the metropolitan area and major cities being relatively more exposed to downside risks."

Housing sale prices (nationwide basis) showed a steep rise until December last year after the pandemic, then turned downward from June this year, with the decline widening in July and August. By region, the metropolitan area and some special/metropolitan cities such as Sejong (-7.93%), Daegu (-3.37%), Daejeon (-1.29%), and Incheon (-1.21%) experienced relatively large declines in housing prices, with transaction volumes and buyer sentiment also significantly shrinking in these areas.

Moreover, the earlier the turning point to decline, the larger the average monthly drop. During the adjustment period (January to August 2022), areas that showed strong growth during the rise period (October 2019 to December 2021) and those with a sharp recent decrease in transaction volume experienced significant price declines.

Additionally, while the price-to-income ratio (PIR) generally rose sharply, the price-to-rent ratio (PRR) was highest in Sejong and Seoul, and compared to just before the rise period (September 2019), Incheon was analyzed as the most overvalued region.

Regarding borrowing conditions, regions such as Sejong, Gyeonggi, Daegu, and Incheon, where the loan-to-income ratio (LTI) of borrowers increased sharply or remained high, are expected to face greater downward pressure.

Over the next two years, apartment supply volumes in most regions are expected to fall short of the average levels of the past three years; however, Daegu, Incheon, and Chungnam are projected to exceed past averages significantly, acting as downward price factors.

Looking at buyer age groups, the share of young buyers (aged 30 and under), who sparked the so-called 'panic buying' controversy, has been declining since peaking in January 2021, with the decrease particularly pronounced recently in the metropolitan area.

Kwon Jun-mo, head of the Regional Economic Survey Team at the Bank of Korea's Research Department, said, "Calculating the HaR (House prices-at-Risk) for a shock corresponding to the bottom 5% of the housing price distribution over the next year (July 2022 to June 2023), the downside risk of housing prices has rapidly increased since the end of last year," adding, "Regions that experienced large price increases during the rise period also show relatively high downside risk."

He continued, "Examining housing price change rates, differentiation between regions became more distinct during the adjustment period than during the rise period," and added, "Even if housing price volatility expands due to factors like interest rate hikes, the extent of price declines may vary by region depending on local housing market conditions."

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