Beware of the 'Toheje' Butterfly Effect... How Much Household Debt Increase Triggers Warning Sounds? [BOK Focus]

"Household Debt Growth Rate to Be Managed Below Nominal Growth Rate (3.8%)"
Annual Household Loan Increase Should Not Exceed 62.7 Trillion Won, Monthly Limit at 5.2 Trillion Won
4.3 Trillion Won Increase Last Month, 1.7 Trillion Won Monthly Average in January and February... Not at Risk Level Yet
Seoul Apartment Transactions and High-Priced Deals Rise After Lifting of Land Transaction Permission Zone
Housing Transactions Are Key to Household Loan Trends... Closely Monitoring for Trend Expansion

The Bank of Korea is paying attention to the housing transaction volume that is stirring again after the lifting of the land transaction permission zone. The increase in housing transaction volume is a key factor that expands the scale of household debt, which the Bank of Korea must closely monitor when implementing monetary policy. Typically, since the final payment loan is taken 2 to 3 months after a housing contract, the increase in housing transaction volume serves as an indicator to gauge future household loan growth.

Financial authorities aim to manage the household debt growth rate to be lower than South Korea's nominal Gross Domestic Product (GDP) growth rate. Nominal GDP is expected to grow by 3.8% this year. Applying this simply to the financial sector's (banks + non-banks) household loan balance of 1,650 trillion won at the end of last year, household debt should not increase by more than 62.7 trillion won this year. This means it should be managed at less than 5.2 trillion won per month.

Household loans in the financial sector increased by 4.3 trillion won last month. After decreasing by 900 billion won the previous month, it turned to an increase within a month. However, last month's increase was largely due to seasonal factors. The resumption of bank loan handling at the beginning of the year and increased demand during the moving season significantly expanded the increase in mortgage loans (jumdae). The technical effect of loans being collectively recorded in early February due to the Lunar New Year holidays at the end of January also played a role. Park Min-cheol, Deputy Head of the Market General Team at the Bank of Korea's Financial Market Department, said, "Looking at the average for January and February, the increase in household loans from banks and non-banks is about 1.7 trillion won," adding, "It is still assessed that the slowdown trend in household loans observed since the second half of last year is continuing."

The issue is the housing transaction volume, specifically Seoul apartment transactions, which have been stirring again since last month. The monthly Seoul apartment sales volume, which had stabilized at around 3,000 cases since September last year, increased again last month as Seoul City lifted the land transaction permission zone. Not only the Gangnam 3 districts (Gangnam, Seocho, Songpa) but also Ma-Yong-Seong (Mapo, Yongsan, Seongdong districts) are seeing rising house prices and increased sales transactions. According to the Seoul Real Estate Information Plaza, last month's Seoul apartment sales volume (based on contract date) was recorded at 4,501 cases. This includes reports up to the 11th of last month, and considering the remaining reporting deadline until the end of this month, it is possible that the number will exceed 5,000 cases.

The long-term average monthly Seoul apartment sales volume since 2010, which can be used as a benchmark, is around 5,600 cases. In July last year, when the housing market was overheated, it surged to 9,224 cases. What is noteworthy is that the recent increase in transactions has been mainly focused on high-priced housing in the Gangnam area of Seoul. The average apartment transaction price last month, as compiled by the Seoul Real Estate Information Plaza, rose to 1.3157 billion won. High transaction prices, along with increased transaction volume, are another factor that will expand the future increase in mortgage loans. This directly reflects in the growth of household loans.

There is an analysis that this movement should be closely monitored to see if it continues as a trend. The increase in housing transaction volume acts as a pressure for household loan growth with a time lag. Deputy Head Park said, "The key factor in household loan growth is the increase in housing transaction volume," emphasizing, "It is especially important to pay attention to the period during which transaction volume increases and the trend of regional spread." He explained, "The extent of the impact can vary greatly depending on the duration of the housing transaction increase and the range of spread to other areas. It is still uncertain whether housing transactions will pause after absorbing pent-up demand or spread to all areas of Seoul such as No-Do-Gang (Nowon, Dobong, Gangbuk districts), but this is a major factor determining the household loan trend in April and May, so we are closely monitoring it together with the government."