[Why&Next] Has the Housing Market Hit Bottom? ... Reasons for Unease About the 'Optimism'

Rising Treasury Bond Yields Affect Mortgage Loan Rates
Market Rates May Rebound if US Tightening Continues
Concerns Over Major Economies' Recession... Must Watch Until Year-End
However, Sharp Drop in Permits... Housing Prices May Surge in 3 Years

Projections surrounding the 'housing price bottom theory' are divided. Recently, as the decline in apartment prices has slowed and mortgage loans have increased again, the analysis that housing prices have hit bottom and only a rebound remains is gaining traction. However, some argue that this is merely excessive optimism. The biggest factors affecting the real estate market are interest rates and the economy, and considering the recent tightening stance in the U.S. and recession forecasts, it is difficult to expect an immediate turnaround in housing prices.

Housing Prices Hit Bottom? ... Seoul Already Rising

The recent growth of the 'housing price bottom theory' in the market and some academic circles is due to the slowdown in the decline of apartment prices and an increase in transaction volume. In Seoul, apartment sales transactions in the first quarter of this year reached 6,858, a sharp increase of 105.1% compared to the same quarter last year (3,343), and as of this date, the second quarter transactions reached 7,953, up 75.4%. According to the Korea Real Estate Board, the nationwide decline in apartment prices narrowed to -0.01% last week, and Seoul has already maintained an upward trend for five consecutive weeks.

Considering that 'gap investment' (buying a house with a lease deposit) is difficult due to the recent reverse jeonse crisis, a significant portion of these purchases appear to be for actual residence purposes. In the private KB Real Estate survey, the top 50 leading apartment complexes have seen apartment prices rise for two consecutive months. Gangnam, which can predict the future situation of the metropolitan area, continues to see an increase in high-priced apartment transactions, and on the 26th, about 930,000 people flocked to the non-designated subscription for Heukseok River Park Xi in Seoul, showing strong subscription enthusiasm.

At the real estate outlook forum hosted last week by the Korean Economic Association and the National Economic Advisory Council, Professor Kim Kyung-min of Seoul National University’s Graduate School of Environmental Studies said, "Since the special Bogeumjari Loan was implemented in January this year, apartment sales transactions under 900 million KRW have surged in both Seoul and Gangnam," adding, "Judging by the transaction volume, the market is not at a point of decline at all." Professor Kim predicted that even if jeonse prices face downward pressure due to rising apartment prices, the reverse jeonse crisis will weaken.

Rather, since apartment permits and construction have significantly decreased last year and this year, there is even talk of a supply shock starting from 2025 to 2026. As housing price rise forecasts dominate, Jo Man, honorary professor at KDI School of Public Policy and Management, who moderated the session, summarized, "Regarding the real estate market and systemic risk, the general opinion of the presenters and discussants today is that it does not seem to be a crisis situation now, but monitoring is necessary."

U.S. Tightening Not Over Yet... "Too Early to Assert Rebound"

However, many experts are concerned about excessive optimism. The most important factor is the uncertain direction of U.S. monetary policy. Mortgage interest rates inevitably have a significant impact on real estate prices, and the interest rates on bank bonds and government bonds that influence them fluctuate greatly depending on the degree of tightening between Korea and the U.S. For example, from last year to the first half of this year, despite the Bank of Korea’s base rate hikes, government bond yields fell due to market expectations of tightening ending, causing mortgage interest rates to decline.

The benchmark for determining the mixed-rate mortgage interest rate (fixed for 5 years, then variable) is the 5-year bank bond yield, which is based on the 5-year government bond yield. Also, the 5-year yield follows the 10-year yield. Therefore, Professor Kim Kyung-min said, "Mortgage interest rates are more influenced by the direction of the 10-year government bond yield than the base rate," and noted that the decline in government bond yields since the end of last year lowered mortgage rates, affecting the housing price rebound through this year.

The problem is that government bond yields have recently been rising again. According to the Korea Financial Investment Association, the 5-year government bond yield fell from 4.638% on October 21 last year to 3.096% on February 3 this year but has recently risen to around 3.5?3.6%. The 10-year government bond yield is also in the 3.6% range. Accordingly, the variable mortgage interest rates of the five major commercial banks have increased at the lower end from 3.91?6.15% at the end of last month to 4.23?6.12% recently.

Since the U.S. Federal Reserve (Fed) has announced a strong tightening stance with plans to raise the base rate twice more this year, government bond yields may continue to rise for the time being. Although concerns about a U.S. recession have caused government bond yields to stall somewhat this week, expectations for additional U.S. rate hikes have not weakened immediately. If the outlook that the high base rate level will not easily decline grows, market interest rates will rise, and mortgage rates and real estate transactions may slow down again.

Watch Transaction Volume This Fall... 'Supply Shock' in Three Years

Therefore, experts explain that to confirm a turnaround in housing prices, it is necessary to observe the transaction situation until the moving season in the fall. A Bank of Korea official said, "It is natural for actual transaction prices to rise once urgent sale properties are exhausted, but the more important question is whether additional properties will come out and be traded at even higher prices," adding, "Everyone agrees that we are at a turning point, but whether housing prices will rise further or if this is just a temporary rebound will be revealed by future transactions."

Ko Jong-wan, president of the Korea Asset Management Research Institute, said, "To confirm whether the housing price rebound is temporary or not, it is necessary to check if transaction volume increases for at least two quarters and if the leading indicator, jeonse prices, rises, but neither condition has been met yet," adding, "Especially since there is still a possibility of additional base rate hikes, it is not a logical analysis to see housing prices rebounding fully right now." He emphasized the need to watch transaction trends until the end of the year.

However, Ko pointed out that since housing permits and construction volumes have been decreasing since last year, there is a possibility of a supply shock within about three years. He said, "It usually takes about three years from construction start to move-in, but recently, construction volumes have been decreasing. Assuming this trend continues, supply will decrease by more than 40% in three years, which could cause housing prices in Seoul to surge," adding, "The government needs to pay attention not only to the 3rd new town and reconstruction but also to other complex developments."

Du Seong-gyu, head of the Mokmin Economic Policy Research Institute, said, "Although suppressed demand sentiment has recovered a lot, the decline over the past year and a half was so large that more time is still needed," adding, "Even if the market recovers, it is expected to show a gentle U-shaped pattern." Du also said, "In Seoul, there are few new move-in volumes, and combined with the decrease in permits, concerns about supply shortages may grow in 2?3 years, potentially disrupting the market once again."

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