The Bank of Korea's Increasingly Strong Warning of a 'Peak Housing Price' Decline

Lee Ju-yeol, Governor of the Bank of Korea, "Price Increase Expectations Lowered, Slowing Rate of Rise"
Significant Adjustment Inevitable if Asset Disposal Begins

Deputy Prime Minister for Economy Hong Nam-ki and Bank of Korea Governor Lee Ju-yeol are attending the National Assembly's inspection of the Ministry of Economy and Finance and the Bank of Korea held by the Planning and Finance Committee on the 21st, and are talking during the inspection. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Jang Sehee] The Bank of Korea's warnings about the decline in real estate prices are gradually intensifying. Last year, it raised the possibility of a 'real estate peak' and advised cautious observation of the trend, but recently it has been giving more direct signals, stating that expectations for price increases are diminishing.

This can also be seen in the language used by Bank of Korea Governor Lee Ju-yeol. Right after the Monetary Policy Committee decided to raise the base interest rate recently, Governor Lee said, "As expectations for price increases in the housing market have decreased, the rate of increase has slowed."

This contrasts with his statement in October last year when he mentioned the real estate peak but said, "We need to observe a bit more to see whether it will stabilize."

A Bank of Korea official also emphasized the possibility of a decline in real estate prices on the 17th, immediately after the base interest rate hike, saying, "If the trend of rising interest rates continues, the possibility of asset price adjustments could further expand."

The Bank of Korea's warning is drawing attention because, as feared last year, a recent decline in housing prices is occurring. According to the 'Apartment Transaction Real Price Index' published by the Korea Real Estate Board for November last year, the nationwide and metropolitan area indices turned down by 0.15% and 0.27%, respectively, compared to October. Notable declines were seen in Seoul (-0.79%), Daejeon (-0.82%), Busan (-0.51%), and Sejong (-4.11%). The Bank of Korea's recent warning places weight on the possibility of further declines.

Experts also seem to agree with the Bank of Korea's forecast of falling real estate prices.

Professor Lee In-ho of Seoul National University’s Department of Economics said, "Housing prices are already at a considerably risky level," adding, "If market sentiment and expectations change, there is a possibility that listings will flood the market." He further explained, "As prices fall, those who purchased homes through borrowing may start disposing of assets," and "Prices could drop by up to 20%."

Professor Kim Sang-bong of Hansung University’s Department of Economics stated, "With loans decreasing and interest rates rising, demand is not significantly increasing," and added, "The significant increase in rental business supply this year will also act as a factor in the decline of housing prices."

[Asia Economy Reporter Jang Sehee]

Meanwhile, the Bank of Korea and the government view a gradual price decline as the most desirable direction. A rapid adjustment could cause greater harm, especially to vulnerable groups.

In this regard, a senior government official explained, "It is most desirable for real estate prices to gradually stabilize downward," adding, "If prices fall sharply, those unprepared for the shock could suffer damage."