BOK says housing prices in Seoul recovered to 90 percent of their previous highs

Clouds are flowing over an apartment complex in downtown Seoul on September 12. Reporter Kwon Do-hyun

The Bank of Korea (BOK) said that housing prices in Seoul recovered to 90 percent of their previous highs, showing a similar trend to the past real estate boom. The central bank acknowledged that the real estate market in the Seoul metropolitan area faces significant short-term uncertainties and predicted that the trend will not continue in the long term.

The BOK published the “Monetary Policy Report (September 2024),” which examines the housing market and household debt situation in the Seoul metropolitan area, on September 12. The report is published twice a year.

The BOK noted that nominal house prices in Seoul have now recovered 90 percent of their highs in 2021, and apartment prices in some districts, such as Seocho-gu, have surpassed their previous highs. It also analyzed that the housing market risk index, which averaged income, rental prices, and household debt to gross domestic product (GDP,) is rising again.

Seoul‘s housing market risk index, calculated by the BOK, stood at 1.11 points in July, which is in the “overvalued” stage. If it is 1.5 points or higher, it is judged that it has entered the "overheating" stage, and the highest risk index of Seoul in 2021 was 1.61 points.

In particular, the recent housing prices in the Seoul metropolitan area have many similarities with the previous price expansion periods of between 2001 and 2003, between 2005 and 2008, between 2015 and 2018, and between 2020 and 2021 in terms of supply and demand, financial conditions, and macro-prudential regulations. In the past, during the period of rise in housing prices, loan interest rates were lowered and macro-prudential regulations were eased as concerns were raised about a supply shortage due to a decrease in housing construction. And, recently, a lack of supply of new apartments such as in Seoul, a drop in loan interest rates due to expectations for a rate cut, deregulation, and expansion of policy finance have also been having a complex impact on housing prices.

The only difference from the past price expansion periods is that the proportion of “gap investment,” which refers to buying a house with a jeonse contract, is low. Based on data released by the Ministry of Land, Infrastructure, and Transport, the proportion of gap investment in Seoul was around 30 percent in the first two quarters of this year. This is lower than in 2021, when it averaged 45 percent.

The household debt-to-GDP ratio is also rising again. The ratio peaked at 99.3 percent in the third quarter of 2021 and fell to 92.1 percent in the first quarter of this year, but it is expected to rise again in the second quarter and reach between 92.4 and 92.6 percent in the fourth quarter. “The stimulus effect of rising housing prices to the economy is limited,” said the BOK, noting that ”it may also act as a structural factor restraining consumption.”

The key question is whether the rise in apartment prices in the Seoul metropolitan area will be prolonged. Only when housing prices stabilize and household debt growth is under control will the BOK be in a position to cut its benchmark rate.

“There is a lot of uncertainty,” the BOK said. However, it is unlikely that the upward trend will continue in the long term after next year. "Housing prices have soared in a short period of time, making the prices burdensome, and the rate of jeonse (the ratio of jeonse price to sale price) itself is not high, so speculative demand does not seem to be high," said Park Jong-woo, vice governor of the BOK. "Although we are cautious, the upward trend of housing prices in the Seoul metropolitan area is not expected to continue for a long time.” He added, "However, we should be wary because the price growth rate itself is still high and the volume of transactions is higher than before.”

※This article has undergone review by a professional translator after being translated by an AI translation tool.