As housing prices in the metropolitan area continue to rise, household debt is also increasing, leading to heightened risks of financial imbalance. Despite stricter lending regulations, the uptick in housing transactions has sustained the growth of household debt, and there are concerns that improved income conditions may further stimulate housing demand.
The Bank of Korea assessed in its 'Monetary Credit Policy Report' released on September 10 that the recent surge in housing prices in the metropolitan area and the steady increase in household debt are contributing to growing financial imbalance risks.
Apartment prices in the metropolitan area are rising, driven by concerns over supply shortages and the transition of actual demand from the rental market to home purchases, particularly in the mid- to low-priced housing segment. Although the price increases in the Gangnam area and Yongsan have significantly slowed since July, high growth rates persist in the outskirts of Seoul and in regulated areas of Gyeonggi Province.
Household debt is also on the rise, continuing its upward trend despite stringent lending regulations and overall management by financial institutions, as housing transaction volumes increase.
The outlook for improvements in housing market supply and demand conditions remains uncertain. The Bank of Korea expressed hope that the 'Rapid Housing Supply Plan' announced in August would be implemented smoothly, alleviating concerns over supply shortages and contributing to housing market stability. While the impact of proposed real estate tax reforms may dampen transactions of high-priced homes, adjustments during legislative discussions could alter the outcome, necessitating close monitoring of future developments.
Improved income conditions are also seen as a potential factor stimulating housing demand. The expansion of domestic economic growth could enhance household purchasing power through improved corporate profits and nominal wage increases, potentially increasing housing demand. In fact, in the first half of this year, the performance bonuses from some semiconductor companies and expectations for expanded internal loans have contributed to rising housing prices in areas like Hwaseong and Dongtan, known as the 'semiconductor belt.'
The Bank of Korea anticipates that the trend of stricter management of household debt by financial institutions will continue for the time being. However, it cautioned that the remaining capacity for household debt in the financial sector could act as a factor for increased lending, depending on future housing market trends.
It is expected that rising interest rates due to benchmark rate hikes will dampen household debt demand and expectations for rising housing prices. However, the impact of interest rate increases on loan demand may vary depending on how much household income conditions improve, underscoring the need for careful monitoring of related trends.
* This article has been translated by AI.
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