As the President Said, Auction Listings Are Piling Up Nationwide... When Will Seoul's Auction "Boom" Cool?

Nationwide ongoing auctions hit a 12-year, seven-month high
Seoul sees only a modest increase from the first half of last year
If the base rate rises to 3.5% in the first quarter of next year
Sale-to-appraisal price ratios may fall, putting downward pressure on home prices

One of the data points President Lee Jae-myung recently called for examining when he raised the possibility of home prices falling was the auction market. Trends in the number of properties put up for auction and auction sale-to-appraisal price ratios serve as leading or lagging indicators of the housing market.

Looking only at current conditions, Seoul's apartment auction market remains red-hot, with sale-to-appraisal price ratios above 100%. The number of ongoing auctions is also below the level seen in the first half of last year. This means demand for successful bids continues to flow in, allowing auction properties to be snapped up quickly rather than accumulate. However, some forecasts suggest that if the base rate is raised further in the first half of next year, the price uptrend in both auction and home sales markets could lose momentum. In the past, home prices and sale-to-appraisal price ratios fell after the base rate rapidly rose into the 3% range.

Despite a downturn in the nationwide auction market... Seoul's sale-to-appraisal price ratio hits 100% amid fervor for survival buying

According to Gigi Auction, a company specializing in court and public auction data, 3,815 properties were put up for auction nationwide last month, the highest number in 12 years and seven months, since March 2014, when the figure reached 4,063. During the same period, the sale-to-appraisal price ratio came to 85.2%, down 0.7 percentage points from the previous month, showing a downturn in which both the number of ongoing auctions and the ratio declined.

Seoul's auction market, by contrast, is moving in the opposite direction. The number of ongoing auctions last month stood at 261, up from the previous month (201) and from January, the start of the year (174). However, it had yet to recover to the level of 279 recorded in July last year. The sale-to-appraisal price ratio also reached 100.1%, returning to the 100% mark for the first time in three months. In general, when the number of properties under auction does not rise sharply and the sale-to-appraisal price ratio exceeds 100%, it is interpreted as a sign that investment fervor in the auction market is continuing.

Seoul's red-hot apartment auction market is believed to have been driven by mid- and lower-priced complexes costing less than 1.5 billion won. The Aug. 3 tax reform sharply increased the holding tax burden on high-priced homes, while mortgage loans of up to 600 million won were allowed only for homes priced at 1.5 billion won or less. As a result, demand for successful bids flowed heavily into small and mid- to lower-priced homes in this year's auction market. According to Gigi Auction, last month the sale-to-appraisal price ratio for ultra-high-priced apartments appraised at 2.5 billion won or more was just 97.1%, while the ratio for apartments priced at 1.5 billion won or less stood at 103.6%. The fervor for survival buying, triggered by a rental housing shortage, stringent tax reforms and lending restrictions, has also affected the auction market.

Sale-to-appraisal price ratios fell after rate hikes in 2011 and 2022... Outlook for next year in focus

However, some forecasts suggest that Seoul's apartment auction fever could eventually cool if the base rate rises to 3.5% in the first half of next year. In the past, when the base rate rose into the 3% range, the number of properties put up for auction increased and sale-to-appraisal price ratios fell after a lag of about one year.

An analysis by The Asia Business Daily of trends in the base rate and Seoul's apartment auction market from 2008 to 2026 found that this pattern was observed during two periods of rate hikes, in 2011 and 2022.

In 2011, the base rate rose to 3.25% in June after three rate hikes. The number of ongoing auctions for Seoul apartments then rose from 556 in June to around 669 in April of the following year, before surging to 754 in August of that year. The sale-to-appraisal price ratio fell from 83.6% to 72.9% in August of the following year, a decline of 8.8 percentage points.

The same pattern emerged in 2022. After the base rate was raised to 3.25% over seven hikes, the number of ongoing auctions for Seoul apartments increased from 162 in November to 281 in November of the following year. The sale-to-appraisal price ratio fell from 88.6% to 80.7%, a decline of 7.9 percentage points.

An increase in properties put up for auction and a rise in sale-to-appraisal price ratios can spill over into the home sales market and affect home prices. According to the Korea Real Estate Board's annual figures for monthly apartment sale price index growth, apartment prices rose 6.14% in 2011 before turning down to -1.43% in 2012. In 2022, home price growth also turned negative, falling to -4.68% from 9.93% the previous year, and remained negative the following year as well (-3.56%).

An expert forecast that if the base rate rises to 3.5% next year, it could put downward pressure on home prices in the auction market and, in turn, the home sales market. Kang Eun-hyeon, head of the auction research center at Myungdo Law Firm, said, "During past periods of rate hikes, sale-to-appraisal price ratios in the auction market tended to fall after a lag of about one year." He added, "Indicators from the auction market can help gauge the direction of the broader real estate market, so when the effects of future rate hikes are fully reflected, they could also put downward pressure on the home sales market."

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