[Real Estate Wealth Briefing] If You Want to Seize the Optimal Timing for Buying Your Home

KB's 'House Price to Annual Income Ratio' Shows
Estimated Income of Homebuyers in Desired Areas

Declining Since Q2 2022 Peak
Still Slightly Above 10-Year Average
Closer to Long-Term Average Indicates Best Time to Buy

▲Lee Jong-ah, Head of KB Real Estate Big Data Center, KB Kookmin Bank

When the spring moving season arrives, the dilemma of whether to buy a home or continue living in a jeonse (long-term lease) deepens for those without a house. Setting aside the idea of purchasing a “smart apartment” to realize capital gains, there is a strong desire to own a home before children grow up and while still working.

This expectation is reflected in the data. According to the 2022 Housing Survey by the Ministry of Land, Infrastructure and Transport (targeting 51,000 households nationwide), 89.6% expressed the “consciousness of home ownership.” In other words, 9 out of 10 people consider owning a home essential.

However, the reality is that many hesitate to take the plunge. Economic uncertainty has increased, and prices for newly built apartments keep rising. Although housing prices have fallen, considering tight household finances, it remains burdensome.

What is the appropriate housing price relative to my income? This can be understood through the “Price to Income Ratio (PIR),” which is the ratio of housing price to annual household income. A higher PIR means housing prices are high relative to income.

According to the Statistics Korea Household Income and Expenditure Survey, for the third income quintile (top 40-60% income group), Seoul’s PIR in the fourth quarter of last year was 10.4. The third quintile’s annual income was 66.35 million KRW, meaning they purchased a home priced at 693.21 million KRW, 10.4 times their income. However, this figure only applies to households that bought homes without loans.

What if the home was purchased with a loan? We need to additionally look at the “KB Apartment Mortgage Loan PIR (KB PIR)” index, which is based on actual loan transaction data. KB PIR refers to the ratio of home price to annual income for people who took out apartment mortgage loans from KB Kookmin Bank to buy apartments in specific areas.

This indicator shows the income of people who bought homes with loans in the area where you want to live and the price range of the homes they purchased. By looking at this index, you can assess whether it is possible to buy a home in your desired area with your income and evaluate your actual purchasing power.

In the fourth quarter of last year, the KB PIR for Seoul was 11.8. This means that when purchasing an apartment in Seoul with a mortgage loan, the average home price was 11.8 times the income (78.13 million KRW), or about 920 million KRW. For reference, Gyeonggi Province recorded 9.4, and Incheon 8.5.

However, it is important to note that the long-term trend of this index shows a downward curve for Seoul, Gyeonggi, and Incheon. In particular, Seoul hit an all-time high of 14.8 in the second quarter of 2022. This means that in 2022, Seoul’s housing prices rose sharply, and people bought homes at the highest price relative to income ever recorded.

Since then, Seoul’s KB PIR has entered a downward trend, falling to 11.8 in the fourth quarter of last year. Considering the 10-year long-term average of 10.7, it is still somewhat high. If this index approaches the long-term average, it can be seen as the right time to seriously consider buying a home.

According to KB Real Estate, Seoul apartment sale prices fell by 0.15% compared to the previous month this month. Meanwhile, jeonse prices rose by 0.52%, marking an eight-month consecutive increase. If you are waiting for the optimal timing to buy a home, now is the time to emphasize “caution.”