BOK: "Stronger Growth May Boost Homebuying Demand... Consistent Policy Stance Needed"

Bank of Korea Releases September Monetary and Credit Policy Report
Assessment of Housing Market and Household Lending Conditions
Interest Rate Hikes Expected to Curb Demand
Income Conditions Expected to Improve with Economic Growth, Potentially Boosting Demand

The Bank of Korea has assessed that uncertainty has grown regarding recent movements in housing prices and trends in household lending. The central bank believes that the continued policy of raising the base interest rate will suppress household loan demand and dampen expectations of rising home prices. However, it also forecasts that strong economic growth could increase households' demand to purchase homes. The report points out that a consistent regulatory stance on household lending policy must be maintained to avoid fueling excessive market expectations.

On September 10, the Bank of Korea made this assessment of the current housing market, household debt conditions, and future outlook in its Monetary and Credit Policy Report.

Recently, apartment prices in the Seoul metropolitan area have continued to rise, particularly among mid- and low-priced homes, driven by concerns over insufficient housing supply and heightened demand from genuine buyers reacting to instability in the rental market. Since July, the pace of price increases in the three Gangnam districts and Yongsan district has slowed significantly. However, the suburban areas of Seoul and regulated areas of Gyeonggi Province have maintained strong upward trends. According to the Korea Real Estate Board, the rate of increase in home prices in the three Gangnam districts and Yongsan narrowed to 0.174% as of July 20, and for three consecutive weeks since August 17, prices have been declining. In contrast, the outskirts of Seoul have continued to see increases in the range of 0.3% to 0.4%.

Household lending has also continued to increase, despite strict lending regulations and overall volume controls in the financial sector, as housing transactions have risen. The Bank of Korea noted, “The continued strong rise in housing prices in the greater Seoul area, alongside a steady increase in household lending, is accumulating risks of financial imbalance.”

The outlook for the future is not seen as favorable either. Regarding housing supply, the Bank of Korea projected that the “Rapid Housing Supply Plan,” announced on August 13, could help stabilize the market if implemented smoothly and thereby ease supply shortage concerns. However, the report also noted that a short-term improvement in supply-demand conditions remains uncertain.

Emphasizing unresolved supply-side uncertainties, the Bank of Korea paid particular attention to the possibility of further increases in housing purchase demand. As domestic economic growth leads to improved corporate profits and higher nominal wages, households' purchasing power may strengthen, potentially boosting their demand to buy homes. In fact, in the first half of this year, a combination of performance bonuses paid by some semiconductor companies and expectations for expanded in-house lending led to notable home price increases in “semiconductor belt” areas such as Hwaseong and Dongtan.

Meanwhile, the Bank of Korea also pointed out that the government’s expanded household debt target could provide households with greater loan capacity, which, depending on housing market trends, could serve as a driver of further household debt growth in the future.

The Bank of Korea stated, “The policy of continued base rate increases is likely to exert upward pressure on loan rates, contributing to the suppression of household loan demand and easing of expectations for rising housing prices. However, the effect may vary depending on the degree of improvement in household income conditions.”

The report went on to say, “Given the current supply-demand situation in the housing market and household income conditions, uncertainty is high in the short term." It stressed the need, as the government closely monitors the impacts of real estate policy and tax reforms, to maintain a consistent policy stance throughout the implementation process so as not to stimulate expectations in the housing market or fuel the upward trend in household debt.”

This content was produced with the assistance of AI translation services.