[BOK Focus] "Is It Okay to Buy a House?"... The Changed Answer of the Bank of Korea Governor After 9 Months

As the Bank of Korea has kept the base interest rate steady at 3.5% for two consecutive times, attention is also focused on Governor Lee Chang-yong's remarks related to real estate. During the rate hike period last July, he made negative comments such as "a correction in housing prices is inevitable," but this time his comments on the real estate market situation have become somewhat more favorable, mentioning "possibility of a soft landing" and "slowing pace of housing price decline."

At a press conference following the Monetary Policy Board meeting on the 11th, when asked, "What would you like to say to young people hesitating to buy real estate?" Governor Lee avoided answering, saying, "When I mention specific price variables, it is when there is a significant difference from our thoughts and I am quite certain about it."

He added, "Last year, since real estate prices were very high, I could speak clearly," and "(However) the current goal is to achieve a soft landing for real estate prices."

In fact, at a press conference right after the Monetary Policy Board meeting on July 13 last year, when asked the same question, he said, "Our country's real estate prices are already at a very high level," and "a correction through interest rate hikes is unavoidable." In particular, he gave a signal that it was an inappropriate time for people in their 20s and 30s to take out loans to buy houses, saying, "It is much more desirable to make decisions considering the risks of (high interest rates)."

Therefore, some analysts interpret Governor Lee's avoidance of specific housing price mentions the day before as reflecting a significant reduction in the gap between the Bank of Korea's view of real estate prices and recent market prices. Last year, housing prices fell significantly due to successive base rate hikes, but now that the high-intensity tightening is ending, housing prices are not expected to drop sharply, so there was no need for the governor to directly warn young people about housing prices.

Lee Chang-yong, Governor of the Bank of Korea, is holding a press conference on April's Monetary Policy Committee interest rate decision at the Bank of Korea in Jung-gu, Seoul on the 11th.
[Image source=Yonhap News]

Governor Lee had previously given similar advice to 'Seohak Gaemi' (Korean investors in overseas stocks) but later changed his stance. After the won-dollar exchange rate soared and overseas investment increased since October last year, at a press conference on October 12, he warned, "Investing in overseas risky assets without expecting the exchange rate to return within 1-2 years risks 'catching the top'."

When Governor Lee gave this 'catching the top' warning, the won-dollar exchange rate was around 1,420-1,430 won, but as the exchange rate later declined, the exchange rate effect that had protected Seohak Gaemi's returns sharply diminished. Among individual investors, the phrase 'Chang-yong Shin' circulated, meaning "If you listen to the Bank of Korea governor, you won't lose money."

However, at a press conference on January 13 this year, when the exchange rate had stabilized, he avoided mentioning 'catching the top' in response to a similar question, saying, "What I said about the exchange rate at that time was exceptional because we felt the won was excessively depreciated in September-October last year." This reflects a principle of not mentioning issues like housing prices or exchange rates unless they are unstable.

Lee Chang-yong, Governor of the Bank of Korea, is holding a press conference on April's Monetary Policy Committee interest rate decision at the Bank of Korea in Jung-gu, Seoul on the 11th.
[Image source=Yonhap News]

Governor Lee also said the liquidity concerns surrounding real estate project financing (PF) are not yet at a worrying stage. He explained, "The most important variable for how real estate PF will develop is real estate prices," and "(Currently) since we have started to keep interest rates steady, the real estate market has somewhat stabilized."

However, some opinions suggest it is difficult to interpret the governor's remarks as a 'time to buy a house.' Although Governor Lee mentioned the stability of the real estate market based on the assumption of rate freezes, there is still significant uncertainty surrounding the base rate direction due to international oil prices, inflation, and U.S. monetary policy.

If inflation deviates from the expected path and tightening continues, or if financial instability triggered by the U.S. Silicon Valley Bank (SVB) incident spreads again, the real estate market could further slump. Governor Lee said, "In the market, there is a strong expectation that interest rates will be cut within this year, but Monetary Policy Board members think that view is excessive."