[2023 Real Estate Outlook] Gloomy House Prices Next Year, '3~7% Decline'... "Downward Trend Continues for 2 Years"

[Asia Economy Reporter Cha Wanyong] The outlook for the real estate market next year is not bright. Nine out of ten real estate experts predicted that the real estate market will show a downward trend next year. The expected price decline is around 3-7%. Most forecasts suggest that the downward trend will continue beyond next year into the following year, indicating that it will take time for the market to recover.

◆ Nine out of ten experts predict a ‘decline’ in housing prices next year = On the 7th, Asia Economy’s Construction and Real Estate Department surveyed 10 experts, including real estate professors and market specialists, about the real estate market outlook for next year. Nine out of ten experts, except one, anticipated difficulties in the real estate market next year. The one expert who did not predict a decline expected prices to remain flat, so no experts foresaw an increase.

First, five experts identified a 3-5% nationwide housing price decline as the main trend. Following that, three experts predicted a 5-7% decline, while one expert each forecasted a decline of over 7% and flat prices.

Experts who predicted a decline agreed that high interest rates, high inflation, and economic recession would sharply reduce demand, leading to a drop in the housing market next year. Among these factors, many experts pointed to high interest rates as the biggest cause of the decline.

According to the Bank of Korea, with the unprecedented six consecutive base rate hikes, the average interest rate on household loans at banks has reached the highest level in over 10 years. Mortgage loan rates are at their highest since May 2012, and general credit loan rates are at their highest since June 2012. As a result, housing prices have been falling more steeply over time this year, coinciding with the rate hike trend. According to housing statistics released by the Ministry of Land, Infrastructure and Transport, nationwide housing sales volume until October this year was 449,967 units, down 49.7% compared to the same period last year.

Meanwhile, on the 30th of last month (local time), Jerome Powell, Chair of the Federal Reserve (Fed), said that while the pace of rate hikes needs to be adjusted, the rate increases themselves will continue for some time, further darkening the outlook for next year’s real estate market.

The regional housing price outlook was generally similar to the nationwide forecast. For Seoul, the metropolitan area (Gyeonggi and Incheon), and other provinces, nine experts predicted declines, and one predicted flat prices.

However, there were subtle differences in the expected decline rates. In Seoul, four experts predicted a 3-5% decline. Im Byungcheol, head of the Research Team at Real Estate R114, who predicted a 3-5% decline nationwide, forecasted a 1-3% decline for Seoul housing prices.

Im Byungcheol explained, “Due to housing supply issues in the city center through reconstruction and redevelopment projects and regulatory easing measures, the decline is expected to be less severe than the national average.”

Other forecasts for Seoul’s decline rates were 5-7% by three experts, over 7% by one expert, and flat by one expert, matching the nationwide decline rate outlook.

Experts analyzed the metropolitan area similarly to Seoul: four predicted a 3-5% decline, three predicted 5-7%, one predicted over 7%, one predicted 1-3%, and one predicted flat prices.

However, some noted regional differences within the metropolitan area. Lee Eunhyung, a research fellow at the Korea Construction Policy Institute who predicted flat prices, said, “The metropolitan area should be divided into areas adjacent to Seoul, such as Bundang, and other metropolitan areas. The former is expected to remain flat, but the latter may see further declines.”

Kim Gyujeong, head of the Asset Succession Research Institute at Korea Investment & Securities, predicted, “The housing markets in Gyeonggi and Incheon will continue to weaken.”

For other provinces, experts expected a more severe decline than in Seoul or the metropolitan area. Three experts predicted a 5-7% decline, three predicted 3-5%, two predicted over 7%, one predicted 1-3%, and one predicted flat prices.

Han Mundo, adjunct professor at Yonsei University Graduate School of Political Economy specializing in Finance and Real Estate, who predicted over 7% decline, said, “Although there are regional differences, areas like Daegu, Busan, and Sejong are showing downward trends in various indicators related to housing price declines, including increased housing supply.”

◆ “Be cautious about purchasing or investing in housing for the time being” = The outlook that the housing market slump will continue for the next 1-2 years is dominant, raising concerns about a prolonged downturn. Among the 10 experts, six predicted the slump would last 1-2 years, one predicted 2-3 years, one predicted over 3 years, and one gave other estimates.

Kim Seonghwan, associate researcher at the Korea Construction Industry Research Institute, was the only one to predict less than one year, but even he expected only a brief recovery. Kim said, “Considering the current fundamentals, there is a high possibility that after a brief recovery, the market will decline again, so caution is required when buying or investing in housing.”

Kwon Jooan, research fellow at the Construction Policy Institute, and Professor Han Mundo advised, “From the perspective of actual demanders, it is necessary to be cautious about purchasing or investing in housing for the time being.”

Ham Youngjin, head of the Big Data Lab at Zigbang, urged, “Don’t rush to buy just because housing prices drop a little,” emphasizing, “Carefully monitor three indicators: increased transaction volume, rising jeonse prices, and financial easing, and be prudent in selecting regions.”