[Financial Stability Report] Bank of Korea: "Expectations for Rising Home Prices Persist, Effective Housing Supply Measures Needed"

Financial Stability Report Briefing

On the 23rd, the Bank of Korea stated, "Although the upward trend in housing prices has slowed since the real estate measures implemented in October, there is a possibility that expectations for further increases in home prices may rise after next year." The bank added, "Effective housing supply measures should be introduced while maintaining the current macroprudential policy stance."

Jang Jeongsu, Deputy Governor of the Bank of Korea, is speaking at the Financial Stability Report briefing held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 23rd. Photo by Bank of Korea

Jang Jeongsu, Deputy Governor of the Bank of Korea, held the '2025 Second Half Financial Stability Report Briefing' on this day and said, "The weekly growth rate of housing prices remains high, and expectations for further increases persist."

Deputy Governor Jang emphasized, "It is necessary to strengthen a consistent macroprudential policy stance while introducing effective housing supply measures." He also pointed out, "It is important to develop micro-level supplementary measures to address potential side effects and vulnerabilities that may arise in this process." The Bank of Korea viewed the limited accessibility to loans for genuine homebuyers and the ongoing weakness in non-metropolitan areas, particularly in real estate project financing (PF), as side effects resulting from the maintenance of the macroprudential policy stance.

Regarding recent calls to lift land transaction permit zones, he expressed a reserved stance, stating, "Since expectations for rising home prices still persist, it is necessary to first ensure housing market stability and strengthen household debt management. Only then should we comprehensively review the housing market situation and reassess regulations."

While acknowledging the need to improve the jeonse system, he stressed the importance of considering supplementary measures to address potential side effects that may arise from reducing the proportion of jeonse contracts. Deputy Governor Jang said, "Jeonse loans can serve as a stepping stone for housing to some extent, which is a positive function, but they also have side effects, such as driving up home prices. The system does need improvement," adding that the Bank of Korea is currently researching the direction of these improvements. Regarding monthly rent, he noted, "It is true that monthly rent increases the housing cost burden, especially for low-income households," pointing out that "the burden of rising monthly rent should be addressed with micro-level measures." He further explained, "The government is aware of these concerns and is considering supplementary measures, such as expanding tax credits for households paying monthly rent."

Deputy Governor Jang pointed out that the prolonged period of high exchange rates has been a burden on the Korean economy. He said, "Rather than external soundness, concerns are focused on inflation and overall social polarization. In particular, the year-end exchange rate level affects the capital adequacy ratios of financial institutions," explaining, "Depending on the year-end exchange rate, the won-converted value of foreign currency assets may increase, which can contribute to a decline in capital adequacy ratios." He added, "However, the capital adequacy ratios of financial institutions currently far exceed the standards, but since the impact could grow, we are closely monitoring the situation."

He assessed that financial stability has improved this year, with short-term financial instability easing, as evidenced by improvements in delinquency rates. According to the Financial Stability Report, the Financial Stress Index (FSI), which comprehensively shows the short-term stability of the financial system, stood at 15.0 (caution level) in November this year, a significant drop from 18.6 in June. However, the Financial Vulnerability Index (FVI), which reflects mid- to long-term vulnerabilities, rose slightly to 45.4 in the third quarter from 43.9 in the first quarter, approaching the long-term average of 45.7 (since 2008).

Deputy Governor Jang stated, "Basically, in a rate-cutting environment, short-term financial instability can improve, which is also confirmed by actual delinquency and soundness indicators. However, the degree of improvement is still insufficient compared to the long-term average, so risks remain." He further evaluated, "Since last October, the policy rate has been cut four times, which has led to the accumulation of financial imbalances, such as investments involving leverage. While short-term risk has improved, mid- to long-term financial vulnerability has increased."