The Bank of Korea: "Possibility of Housing Price Recovery Still Low... Rapid Sales by Yeongkkeul Buyers May Increase"

Bank of Korea Governor Lee Chang-yong is answering reporters' questions at the monetary policy direction press conference held at the Bank of Korea in Jung-gu, Seoul on the morning of the 23rd. [Image source=Yonhap News]

The Bank of Korea recently stated that although the decline in housing prices has slowed, the possibility of an increase in listings from 'Yeongkkeuljok' (people who borrowed to the limit, even to the extent of their soul) remains high, and the real estate market is expected to remain sluggish for the time being.

In its 'Financial and Economic Issue Analysis' report on the 8th, the Bank of Korea explained, "After reviewing the main conditions of the housing market, we found that while the recent decline in housing prices has narrowed, the prolonged sluggish trend in the housing market is unlikely to shift to a rapid recovery anytime soon."

The Bank of Korea forecasted that due to the high interest rate levels, it is difficult for housing demand to increase, and rather, the supply of properties from 'Yeongkkeuljok' is likely to rise.

The Bank pointed out, "The burden of purchasing a home remains high due to elevated interest rates, and especially borrowers in their 20s and 30s with excessive debt may urgently sell their owned homes due to interest burdens."

The jeonse market is also delaying the recovery of the real estate market due to reduced incentives for 'gap investment' (purchasing with jeonse deposits) and the emergence of low-priced sales to repay deposits.

Recently, the proportion of 'reverse jeonse'?where the jeonse price is higher than the market price?has significantly increased, making it highly likely that the gap investment volume that increased in 2021 will be listed for sale this year.

Although housing supply has decreased due to market stagnation, the gap between buyers' and sellers' asking prices remains large, and the level of pre-sale prices is high, so the effect is expected to be limited.

Bank of Korea Governor Lee Chang-yong remarked at a discussion hosted by the Broadcast Journalists Club the previous day, "There seems to be a belief that real estate is invincible and investing in it guarantees success," adding, "However, considering factors like aging, we need to reconsider the assumption that past trends will continue into the future."

The Bank of Korea explained that the delayed recovery of the housing market could lead to a slowdown in consumption and contraction in construction investment through negative wealth effects. It also assessed that the risk of loan defaults among low-income 20-30-year-old 'Yeongkkeuljok' borrowers is high.

The Bank stated, "The sluggish pre-sale market negatively affects construction companies' financial conditions through an increase in unsold units," and emphasized, "Attention should be paid to the real economy impact and financial stability risks arising from the delayed recovery of the housing market in the future."