Missing Home Buyers... Seoul Hits Lowest in 9 Years

Buyers' Dominance Index Below 20
At 2013 Levels, a Typical Recession Period
Possible Big Step by Bank of Korea
Buyers' Sentiment Likely to Remain Weak for a While

[Asia Economy Reporter Kim Hyemin] The number of people intending to buy houses in Seoul is rapidly decreasing. The buyer dominance index, which reflects this trend, has fallen to levels seen during the major real estate downturn in 2013. With the possibility of further base interest rate hikes by the Bank of Korea, there are forecasts that buying sentiment may decline even more amid a cautious stance.

According to the weekly housing market trend report released by KB Real Estate on the 11th, the buyer dominance index in Seoul for the first week of October (as of the 3rd) dropped to 19.9. This is a 0.5-point decrease from the previous week (20.4) and a sharp 5-point drop compared to a month ago. Falling below the 20 mark is the first time in nine years since the first week of September 2013 (18.7). The buyer dominance index indicates that if the value is above 100, buyers outnumber sellers, and if below 100, sellers outnumber buyers. KB Real Estate diagnosed that "the real estate market remains in a state of stagnation."

The problem is that the decline is steep. The buyer dominance index, which was 61.2 in the first week of May this year, has dropped by 41.3 points in just five months. Until August last year, it was 108, exceeding the baseline of 100, indicating more people wanted to buy houses, and in the first week of July 2020, two years ago, it even rose to 154.5, showing a stark contrast. According to the Korea Real Estate Board, Seoul apartment sales supply-demand index also recorded 77.7 last week, the lowest in three years and four months.

Recovery of buying sentiment seems distant. The biggest reason for the weakened buying demand is the high likelihood of another base interest rate hike this month. There are even forecasts that the Bank of Korea may implement a ‘big step’ by raising the base rate by 0.5 percentage points at the Monetary Policy Committee meeting on the 12th. If this happens, the base interest rate will rise from 2.5% to 3.0% annually, inevitably increasing the burden of loans.

As the number of people wanting to buy houses decreases, there is a high possibility of further house price declines. According to a survey conducted by KB Real Estate targeting brokerage offices, the price expectation index was recorded at 61.5 in September. A value below 100 means a larger proportion of respondents expect house prices to fall in the future. The downward trend in house prices leads to a vicious cycle that further suppresses buying sentiment.

Experts believe that the current trend will continue until there are signals that interest rate hikes have ended and housing prices have hit bottom. This suggests that the real estate downturn seen after the 2008 global financial crisis could repeat. At that time, the buyer dominance index remained below 20 for two years and four months, except for three weeks starting from May 2011. The lowest point was 6.8 in December 2012.

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