[The Editors' Verdict]Government Pours Fuel on the FOMO Frenzy

The Market in Turmoil
Amid Mixed Signals and Policy Inconsistencies

The issue lies in how the market interprets the government's signals. Although the government has not even mentioned the word "stimulus," the market is reading it as a stimulus measure. While ordering the Bank of Korea to lower interest rates and delaying the implementation of the second phase of the stress DSR (Debt Service Ratio) by two months, the contradictory situation of growling at innocent commercial banks to tighten loans no longer works.

As of the 25th of last month, the outstanding household loans of the five major commercial banks increased by more than 4.7 trillion won compared to the end of the previous month. This is the largest increase since the borrowing frenzy in July 2021. This trend is mainly driven by mortgage loans. In June, the number of apartment sales transactions in Seoul exceeded 7,000 for the first time in 3 years and 7 months, and there are forecasts that monthly transaction volumes could surpass 10,000 within the year. The apartment price increase rate in Seoul during the fourth week of last month was 0.30%, the highest in 5 years and 10 months since the second week of September 2018.

In Gyeonggi Province, apartment sales transactions in June reached 13,029 units. This is the first time since August 2021 that the number exceeded 13,000, and transaction prices are also fluctuating. How else can we define the current situation where the three factors of "loan coefficient - apartment sales volume - apartment sales price" are simultaneously dancing? Due to inconsistent policies, consumers end up borrowing money at interest rates higher than market rates. Domestic demand remains sluggish, and it is hard to see the flow of household funds into the metropolitan real estate market as normal.

People's concerns focus on whether ▲not buying a house now will lead to regret as prices rise soon ▲whether the house price will stagnate or fall after taking a big loan to buy a house ▲whether a sudden rise in interest rates will cause losses.

After the festival of ultra-low interest rates and liquidity ended, and house prices retreated for a while, the market was already primed to interpret any movement as a message that "this is the bottom." When the second phase of the stress DSR was postponed citing concerns over the hard landing of real estate project financing (PF) and difficulties faced by ordinary citizens and self-employed people, the market responded with derision. Criticism that the government is either falling into the sweet temptation of stimulus or treating real estate as a tool for economic adjustment is quite valid in many respects.

Of course, forcibly holding down house prices is impossible and undesirable. Interest rates inevitably develop resistance, and there is no way to prevent the soon-to-be-visible liquidity butterfly effect centered on the U.S. It is rather appropriate to prepare for a smooth landing after a good rise. This is where the government's wise judgment and precise role are required.

From January to May this year, nationwide housing permits totaled 125,974 units, a 24.1% decrease compared to the same period last year, with Seoul seeing a 35.6% drop. The total housing permits for this year are expected to be around 380,000 units, about 30% lower than the average of previous years (approximately 540,000 units). It is not difficult to predict what will happen if the current supply indicators shock the clearly anticipated financial and real estate upswing. For the time being, this period should be a buffer and a time for cautious management in preparation for that.

The government's mixed signals have stirred up this sensitive market. Maintaining the stance that there is sufficient supply and then suddenly changing the attitude to re-examine all policies from scratch to expand supply, a move lacking stability and consistency, has poured fuel on the impatience of "if not now, then when?"