House prices “going up” vs “down, already started”

Last year, the real estate market was a continuation of a hot ‘bull market’ across the country.

Based on the weekly apartment sales price statistics of the Korea Real Estate Agency on the 1st, the national increase rate last year reached 13.25%. This is almost double the figure in 2020 (7.04%).

The metropolitan area (Seoul, Gyeonggi, and Incheon), which serves as a barometer for nationwide house prices, surged 16.23%. Incheon soared 22.56%, the highest among 17 cities and provinces nationwide.

Seoul recorded a lower growth rate of 6.58%, but considering the four-year surge in house prices in earnest under the current government, the price increase itself is much larger.

The explosive increase in liquidity due to the low interest rate trend, lack of housing supply, soaring Jeonse prices, and favorable news for the development of the metropolitan area express railway (GTX) have caused house prices to fluctuate nationwide, both in the metropolitan area and local regions.

However, in the fourth quarter of last year (October to December), the number of transactions decreased significantly and the market buying trend is showing signs of subsidence. In particular, in the last week of December, Eunpyeong-gu, Gangbuk-gu, and Dobong-gu turned downward in Seoul, and house prices fell mainly in the suburbs of Seoul, which had led the upward trend.

There are cautious observations that the house price may have reached an inflection point as house prices have peaked due to the fatigue of the surge in house prices and the addition of loan regulations and interest rate hikes. As cases of declines in actual transaction prices are rapidly increasing in various parts of Seoul, some predict that the Seoul house price statistics will turn weak from this month.

However, it was difficult to solve the supply shortage problem immediately, and the jeonse price anxiety could reappear in the second half of this year due to the side effects of the rental law.

We listened to the forecast of the real estate market in 2022 from 10 real estate experts (in alphabetical order). Five out of ten people put their weight on the idea that house prices will continue to rise this year. However, there was a general consensus that the rate of increase would be lower than last year.

The three predicted that house prices would fall this year. The fact that the fatigue caused by the long-term rise is considerable, means that house prices are inevitably going into a correction phase this year. The two expected a flat market that would repeat the rise and fall from the current level.

◇ Koh Jong-wan, head of the Korea Asset Management Research Institute, said, “Province is flat, but Seoul will continue to rise within 5% this year.”

“Next year, the number of move-ins in Seoul will decrease, but if the Jeonse price rises, it is difficult for house prices to fall. On the other hand, interest rates are rising, and above all, market sentiment is changing. There are factors that increase and decrease. There are variables for the presidential election. If not, you may become anxious again.

It is a chaotic market that appears in a transitional period. If the decline in the trading decline continues for a while and the decline area spreads over 50%, it can be diagnosed that a key trend has changed, but it is too early for now.

Seoul is still expected to rise within 5%. Gyeonggi and Incheon are expected to maintain an upward trend of 1-3%. In the provinces, there are a lot of unsold houses and purchasing sentiment is shrinking a lot, so it is likely to remain flat. From past experience, Seoul tends to be the last to drop off.”

◇Kwon Il, head of real estate information team, said, “It is expected that the increase will be maintained at the level of half last year. After the election, the rise could increase.”

“The rate of increase will be lower than that of last year by half, but it is expected to continue to rise. House prices have risen a lot in the past year, and it seems that the increase in this year and next year has already been reflected to a large extent. This year’s rate of growth has slowed compared to last year. But it doesn’t look like it’s going to go down.

Issues such as the presidential election and local elections to be held next year are expected to have a significant impact on house prices. After the election, the rise could be even wider. After the election, there is a high possibility that development issues will arise in each region. As there are election variables, it is good to watch the market and make a decision.”

◇Kim Yeol-mae, a researcher at NH Investment & Securities, said, “The rate of increase is slowing, but it is difficult to find a trigger that will lead to a reversal of the decline.”

“The recent slowdown in the growth rate does not mean a full-fledged trend reversal. We view it as a temporary slowdown following a short-term surge. Excluding external abrupt variables, it is difficult to find a trigger that will lead to a nationwide downturn. In particular, in the case of Seoul, housing prices are expected to increase due to a decrease in the number of move-ins and an increase in jeonse prices.

However, this year’s housing price growth rate is expected to slow compared to last year due to the price burden caused by double-digit increases for the second year in a row and stronger loan regulations. Also, policy changes after the election are likely to have a significant impact on the mid- to long-term trend.”

◇Baek Kwang-je, a researcher at Kyobo Securities, said, “It is difficult to raise house prices further due to a decrease in demand and a decrease in loans.

“House prices are expected to turn weak right away from January. House prices have risen too far in the meantime, and the total debt-to-income ratio (DSR) will be strengthened from January 1 of this year. Due to the limited supply, the total amount of demand itself will decrease significantly, and house prices are expected to remain weak regardless of supply shortage.

In addition, since the supply part will improve a lot next year, we believe that there is a possibility that house prices will fall into a long-term downward trend in the long term. It is estimated that the actual transaction price has turned negative since November of last year, but since it is reflected in the standard market price with a lag of about two months, I expect that the indices announced from January of this year will fall a lot.”

◇Song In-ho, head of KDI’s economic strategy research department, “This year, it will rise…it will fall from next year”

“Recently, the increase in house prices has decreased, but it has not turned into a decline. The trend is expected to continue until the first half of this year. After July of next year, the increase in the price of jeonse is expected to increase as a lot of properties for which contract renewals have been completed come out. In the case of the trading market, there is a possibility of going strong.

Overall, the upward trend is expected to decrease until the first half of next year, and lead to a sustained upward trend in the second half of next year. The rate of increase in house prices next year is expected to be less than 4%, halving compared to this year. After that, it is highly likely that the overall trend will turn downward from 2023.”

◇Ahn Myung-sook, general director of Lucent Block Real Estate, “Supply shortage situation, slight steady trend”

“The uptrend is not completely broken, but the uptrend is expected to decrease significantly.

Although interest rate hikes and strengthening loans are psychologically affecting demand, there are some areas where Jeonse prices will stabilize, and it is difficult to completely improve the supply shortage situation. It is difficult to say that the demand for investment in real estate is completely extinguished because liquidity is still abundant while this part remains a fire in the market.”

◇ Yang Ji-young, head of R&C Research Center, “The rise will decrease significantly”

“I expect the rate of increase to be much smaller than last year. The three major factors that affect house prices are policy, interest rates, and supply. Buyers will be burdened.

In addition, fatigue from the fact that housing prices have risen a lot in the meantime will be reflected, and it will be difficult to get a loan, so the demand for housing will inevitably fall. Considering these circumstances, it is difficult to increase the extent of price increase. Although the supply factor has not been resolved, we believe that demand for existing homes for sale can be converted into demand for pre-sale homes through advance subscriptions such as 3rd new city.

However, it is difficult for the overall growth rate to fall to negative since there have been few cases of negative annualized so far, and there are mid- to low-priced apartments or undervalued areas that do not have a loan burden.”

◇Lee Kwang-soo, Senior Research Fellow, Mirae Asset Securities “There is a high possibility of a decline”

“In the current situation, it seems highly likely that house prices will fall. In the real estate market, prices rise only when there are buyers. However, because house prices have risen a lot, demand has decreased. On the other hand, the number of people to sell is increasing. Then the price will fall.

In addition, interest rates are rising, and various signals are emerging as the government increases supply. Homeless people are also expected to receive a subscription or buy a house, so the demand for housing is expected to decrease. As demand decreases, house prices will naturally change.”

◇ Lee Jae-guk, an adjunct professor at the Korea Financial Research and Training Institute, “There is room for upside until this year due to the small amount of occupancy”

“The overall market trend this year is likely to rise slightly or remain flat. Since the number of tenants in Seoul is small, there is room for upside until this year, regardless of the outcome of the presidential election.

However, there are likely to be differences by region and amount. In a situation where the transaction cliff is intensifying due to the government’s high-strength real estate loan regulation and property tax, the transfer tax exemption standard for first-generation, one-family homeowners has been raised to 1.2 billion won, which may cause demand for conversion to higher grades. Apartments for sale between KRW 1 billion and KRW 1.2 billion may show a stable trend as they become abundant, but apartments over KRW 1.5 billion are expected to rise in price as the shortage continues for the time being.”

◇Jang Jae-hyun, head of Real Today’s research division, “Seoul 30 pyeong unit exceeds 1 billion won, demand for construction will decrease”

“When house prices fell from 2008 to 2009, there were issues such as promotion of the second new town, loan regulation, and interest rate hike, but the situation is similar to then. In 2007, the price of an apartment was less than 1 billion won, but now the 30 pyeong unit is more than 1 billion won.

Since the proportion of loans is very high, if interest rates rise, the burden will be much higher than it was 10 years ago. The price is expected to remain flat as the demand is dispersed through the 3rd new city and the demand to purchase the built-up apartments decreases.”

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