[Mid-Year Review] ③ "Only Some Areas Like Sudogwon... Housing Prices Stable in Second Half"

Housing Market Recovery Difficult in Second Half
Transaction Volume Expected to Remain Lower Than Average
Polarization of House Prices Between 수도권 and 지방 Deepens

Editor's NoteThe real estate market in the first half of this year was marked by a chaotic battle of strength between buyers and sellers. With interest rate hikes and the bankruptcy of the U.S. Silicon Valley Bank (SVC), buyer sentiment cooled significantly, and until February, transaction volumes, the sales supply-demand index, and the actual transaction price index remained in a stagnant phase. The number of unsold houses exceeded 70,000 units, sparking fears that the market had reached a 'danger level,' which overshadowed the pre-sale market, leading construction companies to postpone their sales schedules one after another.
As concerns over a real economy downturn grew, the government swiftly announced the 1·3 measures covering subscription, taxes, and loans, along with the special BoGeumjari Loan to ease the financial burden on actual buyers. Subsequently, from early April, buying demand revived mainly for mid- to low-priced apartments under 900 million KRW, narrowing the price decline, and some regions even saw apartment prices turn upward compared to the previous month. This sparked debates between theories of a price bottom and calls for caution.
The jeonse (long-term lease) market followed a similar trajectory to the sales market. In complexes with large supply in areas like Gangnam, Seoul, listings appeared at prices several hundred million KRW below market value, and actual contracts were made, pulling down jeonse prices. The rise in jeonse loan interest rates compared to last year shifted jeonse demand to monthly rent demand, and the decrease in jeonse demand and falling jeonse prices deepened the reverse jeonse phenomenon alongside jeonse fraud.
The pre-sale market shows a stark contrast between the Seoul metropolitan area and provincial regions. While the subscription competition rate in the metropolitan area, which had many undersubscribed cases earlier this year, rose to 24:1 this month, the non-priority subscription for Heukseok River Park Xi in Dongjak-gu, Seoul, attracted a staggering 930,000 applicants. However, outside Seoul, subscription results were dismal. The first-priority subscription competition rates in major provincial cities all failed to exceed 1:1. This polarization is expected to continue as long as the provincial housing market remains sluggish.
Experts predict the real estate market will remain flat in the second half of the year. Concerns over a reverse jeonse crisis persist, and the possibility of further interest rate hikes remains open, making a rebound difficult. Recently, the depletion of urgent sale listings has led to rising asking prices, increasing the price burden for entry and deepening buyers' cautious stance.

Experts forecast that housing prices will remain flat in the second half of this year. Although housing transactions have somewhat improved compared to the end of last year and the price decline has slowed, only some markets, such as the Seoul metropolitan area where there is latent demand, are expected to recover due to concerns over economic slowdown, increased asking prices after urgent sales depletion, and oversupply in some regions. In particular, regional polarization in housing prices is expected to continue.

[Image source=Yonhap News]

The Construction Industry Research Institute recently held the '2023 Second Half Construction and Real Estate Market Outlook Seminar,' where it forecasted that nationwide housing sale prices will fall an additional 0.7%, resulting in an annual decline of 4.8%. The Seoul metropolitan area is expected to stabilize and enter a flat phase in the second half. While some increases may occur in Seoul and certain areas, it is considered difficult to change the overall market trend. Provinces, having already fallen 3.4% by May this year, are expected to decline an additional 1.6% in the second half, totaling a 5.0% annual drop.

Kim Seong-hwan, Deputy Research Fellow at the Construction Industry Research Institute, said, "Early-year deregulation somewhat eased downward market pressure, and over 30 trillion KRW in policy financing flowed into the market, reducing the year-on-year decline. In the second half, the implementation of policies announced earlier in the year and the base effect will slow the decline in the Seoul metropolitan area, but difficulties in provinces will continue, making it hard to expect a housing market recovery in the second half."

Ham Young-jin, Head of the Zigbang Big Data Lab, stated, "In the first quarter, real estate regulations were significantly eased with deregulation and the launch of the special BoGeumjari Loan. With inflation slowing and concerns over economic contraction, the pace of base interest rate hikes has slowed considerably, leading to some improvement in housing transactions and a reduction in price declines compared to the end of last year. However, transaction volumes are expected to remain below average for the time being."

Song Seung-hyun, CEO of Urban and Economy, said, "Housing prices will continue to decline in the second half, but the rate of decline will slow. The market is expected to remain sideways until the third quarter."

Concerns were also raised that the increased asking prices after urgent sales depletion and ongoing worries about economic recession and reverse jeonse make it difficult for housing prices to enter an upward phase. Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, analyzed, "In the Seoul metropolitan area, urgent sale listings were depleted in the first half, and with the possibility of loan interest rates rising until the third quarter, a lull is expected for the time being. The reverse jeonse crisis, high base interest rates, and economic recession make a sharp rebound in housing prices unlikely."

Kim Gyu-jung, Head of Asset Succession Research at Korea Investment & Securities, said, "There is a lot of latent demand waiting for appropriate listings, but with urgent sales depleted in the first quarter, asking prices in Gangnam, Seoul, have risen by about 200 to 300 million KRW, making aggressive purchasing decisions difficult. Unless prices return to last year's second half levels, few buyers are likely to act quickly."

Concerns were also raised about the deepening polarization of housing prices between the metropolitan area and provinces. Ham said, "Due to interest burden, economic slowdown concerns, reduced speculative expectations, oversupply in some areas, and unsold units, a limited market recovery centered on regions with latent demand such as the metropolitan area is expected, continuing regional polarization."

Kim added, "In the metropolitan area, prices are rising gradually as buyers with financial capacity purchase in prime areas, but looking at indicators such as unsold units, subscription competition rates, and transaction volumes in provinces, it is hard to say the market is normalizing, showing a temperature gap between the metropolitan area and provinces."

Experts argue that the direction of housing prices in the second half depends on the linkage between sale prices and jeonse prices, as well as the resolution of the reverse jeonse crisis, base interest rates, and economic indicators. Park said, "The trend in housing prices depends on resolving the reverse jeonse crisis, lowering base interest rates, and real economic recovery. However, since apartment prices fell to record lows after the foreign exchange crisis last year, further sharp declines are unlikely."

Ham explained, "Economic growth rates and other economic indicators, as well as inflation and base interest rates, are connected to the cost of financing real estate purchases, so it is important to watch these trends closely. If financing interest costs decrease somewhat, it can lower the hurdle for home purchases through loans, potentially leading to price increases and higher transaction volumes."

He also advised considering not only transaction volume trends but also the actual transaction price index and the nature of transactions. Song suggested, "Rather than focusing solely on increased transaction volumes, it is important to examine the proportion of rising and falling transactions in the actual transaction price index to understand the nature of transactions driving the market."