Auction Applications Expected to Surpass 110,000 for Second Consecutive Year... Reaching Global Financial Crisis Levels [Real Estate AtoZ]

Auction Applications Expected to Surpass 110,000 Last Year
Rising Share of Compulsory Auctions Amid Economic Downturn
High Interest Rates Put "Yeongkkeul" Borrowers at Risk
Auction Listings Predicted to Peak in the Second Half of This Year

The number of real estate auction applications last year is expected to exceed 110,000 cases. This figure is nearly 30% higher than the annual average of the past five years, marking the third consecutive year since 2023 that the total has surpassed 100,000 cases. This indicates that a significant number of properties have been transferred to the courts due to defaults on debt or failure to repay loans. Recent trends are comparable to the surge in auction listings during the global financial crisis, raising concerns about the financial health of ordinary citizens amid rising interest rates and an economic downturn.

Auction Applications Surge as a Barometer of the Real Estate Market

According to court auction statistics released on January 7, the total number of auction applications filed with the courts from January to November last year reached 109,921 cases. Given that monthly applications ranged from at least 8,000 to nearly 10,000, the annual total is expected to approach 120,000 cases once December is included. In 2024, the annual number of auction applications was 119,312 cases, the highest in 15 years since 2009.

From 2020 to 2024, the average annual number of auction applications was around 93,826 cases, with a clear upward trend observed over the past one to two years. The number of auction applications is a statistic that counts the cases in which creditors apply to the court to recover debts. While the number of ongoing (bid) auctions accumulates unsold properties over time, the number of applications reflects economic conditions more quickly and accurately.

This marks the first time in 12 years that auction applications have exceeded 110,000 cases for two consecutive years, a situation last seen during the global financial crisis in 2008 (115,835 cases) and 2009 (124,252 cases), as well as during the real estate market downturn in 2012 (118,015 cases) and 2013 (119,166 cases). In 2008, the surge in auction listings was driven by the economic recession and real estate market contraction following the global financial crisis. Around 2013, a slump in real estate transactions and increased supply of housing led to a significant drop in housing prices.

Interest Rate Burden Increases... Prolonged Economic Downturn Has a Compound Effect

The primary reason for the sharp increase in auction applications over the past two years is rising interest rates. Since the third quarter of 2021, interest rates have been climbing, putting homeowners who purchased properties with ultra-low-rate loans-so-called "Yeonggeul" (a term for leveraging all possible means to invest)-at risk of losing their homes. According to Bank of Korea statistics, the average interest rate on newly issued mortgage loans at deposit banks in November last year was 4.17%, up 1.92 percentage points from 2.25% in November 2020. As low-interest loans issued during the COVID-19 period reached maturity, borrowers faced a surge in interest expenses, resulting in more auction applications.

The prolonged economic downturn has also played a role. Notably, the number and proportion of compulsory auction applications arising from personal debts increased compared to the previous year. From January to November last year, there were 42,319 compulsory auction applications, a 6.4% increase from 39,775 cases during the same period the previous year. The share of compulsory auctions in total applications also rose by 1.5 percentage points, from 36% to 38.5%.

Compulsory auctions are initiated by creditors to recover debts not secured by real estate collateral, typically involving tenants unable to reclaim their deposit or individual debtors. Voluntary auctions, on the other hand, are initiated by financial institutions when borrowers fail to repay principal and interest on loans secured by real estate.

Kang Eunhyeon, Director of the Myungdo Law Firm Auction Research Institute, explained, "Typically, compulsory and voluntary auctions maintain a 3:7 ratio. The fact that compulsory auctions-where properties are auctioned off due to unpaid personal debts-have approached 40% is a trend commonly seen during periods of economic recession."

Experts predict that, based on these trends, the number of properties up for auction in the second half of this year will reach its peak. It usually takes six to seven months from the auction application to the first bidding session. Currently, a large volume of 2024 auction cases is being filed, while many of last year's cases have yet to reach the bidding stage. Director Kang stated, "A significant portion of the cases filed last year are expected to be released to the market in earnest in the second half of this year. As the number of auctioned properties increases, the winning bid rate is expected to decline due to the increased supply."