[Financial Stability Report] Seoul Housing Market Risk Index Expected to Rise Further in Q2... "Caution Urged Over Additional Price Increases"

After Peaking in 2021, Seoul Housing Market Risk Index Rises Again to 0.9 in Q1
"Likely Increased Further in Q2"
Rapid Rebound in Seoul Home Prices, Possibility of Further Increases
"Need to Instill Confidence in Stable Housing Supply"

The Bank of Korea has pointed out that financial imbalance risks related to the housing market in Seoul are rising again recently, calling for heightened vigilance.

According to the "Financial Stability Report for the First Half of 2025" released by the Bank of Korea on the 25th, the risk index for the Seoul housing market, as estimated by the Bank, rose to 0.9 in the first quarter of this year. After peaking at 1.76 in the first quarter of 2021, the index had gradually eased, but it is now rebounding rapidly. The Seoul housing market risk index is a figure calculated by the Bank of Korea using the gap between Seoul apartment prices and income, rent, and nationwide apartment prices, the ratio of household debt to gross domestic product (GDP), and the gap in residential construction investment. This index provides insight into the financial imbalance risks in Seoul's housing market.

Jang Jeongsoo, Director General of the Financial Stability Department at the Bank of Korea, stated, "The data is available only up to the first quarter, but considering that Seoul apartment prices have risen sharply compared to the nationwide average and that household debt has also increased further, it is highly likely that the index will rise even more if we look into the second quarter," adding, "We believe that concerns about an overheated housing market could intensify, especially in Seoul."

He explained that the impact of falling interest rates on housing prices and household loans tends to grow as rates decrease, which means extra caution is required in the current interest rate cut cycle. The Bank of Korea considers household loan interest rates of 3.2% per annum or lower to be low, and explained that in such a low-rate environment, a further drop in rates could raise household loans by 0.68 percentage points and housing prices by 0.9 percentage points.

This recent rise in Seoul housing prices, which began partly due to the partial lifting of the Land Transaction Permission Zone (Toheoguyeok), has shown a steeper upward trend compared to the past, with weekly growth rates reaching 0.1% in just five weeks and 0.2% (an annualized rate of about 10%) in just seven weeks. Recently, transaction volumes have increased again, and the rate of price growth has also expanded. This is because, as housing market trends in the Seoul metropolitan area and non-metropolitan regions diverge, expectations for further price increases are growing in Seoul, causing potential buyers to respond quickly to changing conditions. The Bank of Korea also estimated that regulations on owners of multiple homes have increased the incentive to own a single home in preferred areas, which has contributed to the expansion of demand in Seoul. Jang commented, "Seoul real estate prices are rebounding very quickly. In some parts of Gangnam, the weekly growth rate is 0.7%, which translates to about 30% on an annual basis," adding, "We are closely monitoring the market situation and taking it very seriously."

Yonhap News Agency

The Bank of Korea emphasized the need to be alert to the possibility of significant upward pressure on housing prices, particularly in Seoul and the surrounding metropolitan area, under the current trend of interest rate cuts. The Bank stressed the importance of maintaining a consistent approach to macroprudential policy and ensuring a stable supply of housing in the future. Jang stated, "Real estate market prices are influenced by supply and demand, expectations, financial conditions, real estate policies, and macro-stability measures. Therefore, from a long-term perspective, a stable supply of housing is essential," adding, "To calm the expectations that are a major driver of real estate price increases, it is also important to instill confidence that stable housing supply will be achieved."

Regarding non-metropolitan areas, the Bank of Korea pointed out that if the housing market slump persists for an extended period, the soundness of financial institutions with significant exposure to related risks could deteriorate. Therefore, it is necessary to manage risks carefully while also improving living conditions in these regions to help alleviate regional imbalances.