South Korean apartment prices fall at fastest pace in two decades

SEOUL, Nov 16 (Reuters) – South Korea’s property prices fell to their highest rate in at least 19 years in October, adding to expectations that the country’s central bank will slow its pace of rate hikes of interest in the coming weeks.

Apartment prices in South Korea nationwide fell 1.20% in October from the previous month, according to the Korea Real Estate Board, the biggest monthly decline since the data series began in November 2003, as rising mortgage rates continue to drive down demand.

In the capital Seoul, apartment prices fell 1.24%, the fastest since December 2008, extending losses to a ninth consecutive month.

The national apartment transaction price index fell 7.13% in the January-September period, on track to see the biggest annual drop since the data was introduced in 2006.

The Bank of Korea is expected to raise interest rates (KROCRT=ECI) by 25 basis points on November 24, after making a total of 250 basis points of hikes since August last year to contain inflation.

Soaring living costs are eroding household incomes and clouding consumption prospects in Asia’s fourth-largest economy, where private spending accounts for about half of gross domestic product.

Analysts expect only one or two more interest rate hikes by the Bank of Korea for the rest of this year and 2023 to take the terminal rate to 3.25% or 3.50%.

Some, including Citi and Morgan Stanley, have raised the possibility that the BOK’s current tightening cycle will end at 3.25% last week on growing headwinds for growth and concerns about a credit crunch on stocks. short-term money markets.

“Historically, the real estate market has been one of the most important variables in South Korea’s monetary policy, as it is closely linked to the country’s household debt, which is the highest in the world in terms of ratio. to GDP,” Moon Hong-cheol said. , economist at DB Financial Investment.

South Korea’s household debt-to-GDP ratio stood at 102.2 percent in the second quarter, according to data from 35 major economies from the Institute of International Finance.

“Excessive tightening can have irreversible effects, and for the soft landing of the property market, the BOK will need to appropriately reflect market conditions in its monetary policy decisions,” added DB Financial’s Moon.

It’s also a view shared by one of the seven BOK board members on Tuesday, as Suh Young-kyung said the current pace of interest rate hikes needed to be eased in case economic slowdown due to fallout from a local credit crisis.

Over the past five years, home prices in Seoul have more than doubled in what started as a stimulus-fueled house hunt and morphed into a national pastime, even as lending restrictions heavier ones have plunged many millennia into financial hardship.

Reporting by Cynthia Kim; Edition by Lincoln Feast.

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Julio V. Miller