[The Editors' Verdict] 'Seoul Housing Price Rise' Is Not an Illusion, But...

Hwang Junho, Head of Construction and Real Estate Department

"Given the uncertain economic outlook, rising construction costs leading to high sale prices, and factors such as the supply of 3rd phase new town apartments starting in the second half of next year, it is difficult to expect a shift to a sustained upward trend."

This is the housing price forecast released by Park Sang-woo, Minister of Land, Infrastructure and Transport, on the 9th. It serves as a reference for those recently losing sleep over whether they should buy a house amid rising prices.

In fact, recent real estate indicators have been moving in a direction different from Minister Park’s forecast. Notably, the rise in Seoul housing prices stands out. After two consecutive months of price increases (according to the Korea Real Estate Board), the rate of increase also grew (April 0.09% -> 0.14%). Analysis from Zigbang shows that 60.4% of apartment sales in Seoul from January to May have recovered to at least 80% of last year’s peak prices. Furthermore, 1 in 10 transactions (9.3%) have prices that have already surpassed or are close to last year’s highest levels.

Transaction volumes have also increased. In the first half of this year, the number of apartment transactions in Seoul (according to Real Estate R114 as of the 14th of this month) reached 17,980, the highest since the first half of 2021. Since March, monthly transactions have exceeded 4,000. The industry considers 4,000 to 5,000 monthly transactions as the normal level. Real estate agencies in major Seoul districts recently evaluated the market situation as "housing prices have risen" or "transactions are picking up" (according to our June 12th report: Urgent Housing Price Check).

Signs of the housing price rise spreading to surrounding areas have also been observed. The Korea Research Institute for Human Settlements analyzed that from the end of last month, apartment prices in popular metropolitan areas such as Incheon and Gyeonggi have turned upward. They also expect that if the first-phase new town redevelopment lead districts in the metropolitan area are designated in the second half of this year, prices could surge in those areas. It is anticipated that by around September to October, the spark of rising housing prices will spread to local metropolitan cities with abundant jobs.

A decline in supply performance could further reinforce this trend. The expected number of housing permits this year is about 380,000 units, which is 30% less than the annual average of 540,000 units from 2017 to 2021. The Korea Research Institute for Human Settlements predicted, "If the decrease in housing supply continues this year following last year, there is a high possibility that a housing price surge due to supply shortage will reoccur next year or the year after."

It feels like one should buy a house immediately. However, looking at the bigger picture, the macroeconomic environment that has been suppressing housing prices?such as high interest rates and high inflation?has not changed. Both the U.S. and South Korea are in situations where lowering benchmark interest rates is difficult. On the contrary, new negative factors are approaching. Project financing (PF) restructuring, starting in the second half of this year, is the biggest issue in the construction industry. Unsold units exceeding 70,000 could become a ticking time bomb worsening construction companies’ financial conditions. While unsold units accumulate, construction cost increases are pushing sale prices higher. In the long term, the expansion of supply due to the 3rd phase new town sales could pull prices down.

Experts generally warn that the current transaction volume is insufficient to lead a sustained rise in housing prices, and speculative investors have not yet entered the market, so caution is advised when purchasing homes. It seems these points were considered in Minister Park’s forecast. After all, who would be more sensitive to market changes than the minister in charge of the real estate market?

This is a difficult time to rush into buying a home swept up by the mood. One must make a careful decision to avoid being completely drained by falling prices after making an ‘all-in’ (younggeul) investment. The long-standing investment adage in the securities world, "buy at the knee and sell at the shoulder," has a blind spot: it is impossible to tell where the knee ends and the shoulder begins, which should not be forgotten.