The real estate market is shaking again? It's not just Korea.
Haebom
Recently, The Economist published an article titled "Why house prices have risen once again." The content is simple: real estate assets continue to rise despite the global economic downturn.
This is particularly true in wealthier countries, where three main factors are believed to be driving up house prices again in 2023:
1.
Lifestyle changes due to the pandemic
2.
The Changing Mortgage Market
3.
Stability of household finances
The current housing market situation is one where short-term fixed mortgages are expiring, inflation is continuing, and central banks are likely to raise interest rates further. This could put pressure on the housing market in the future, but for now, house price increases are continuing.
Of course, the Fed and Goldman Sachs said that this was temporary and there would be another decline (stabilization)...
Lifestyle changes: Since the pandemic, people have been working and entertaining from home more. This change has increased the value of living space and increased demand for housing, which has restrained price declines.
Mortgage market changes: Fixed-rate loans were common in some countries, including the US and Denmark, and other countries moved in a similar direction before 2022. This delayed the impact of central bank rate hikes.
Stability of household finances: Since the 2007 housing crisis, many governments have introduced stricter regulations to block borrowers with poor credit. In addition, the large ‘excess savings’ accumulated during the pandemic have helped households cover interest costs.
The Fed seems to be somewhat slowing down its rate hikes based on the employment index and recent events, but if things go as planned, it should raise rates more to catch this bizarre market. How much does the BOK want to raise rates? They can't because of the ongoing chaos around them. I personally completely agree with the opinion of the Bank of Korea governor. It is true that we need to raise rates to 5% like the US to normalize this market.
In the case of the United States, the mortgage market experienced a financial crisis in 2008, and fixed-rate loans were maintained, and lending standards were designed more tightly. In fact, this had the effect of screening out all the people who could not buy ramen as they were, such as the young generation, and those who made excessive gap investments.
This is the part where I feel again how great Shin Young-man is, who purchased a private home with a 35-year loan.
Personally, the situation in Korea is that the ratio of mortgage loans is too high... and as a result, the household debt is higher than the GDP, which is a ridiculous situation. This is similar to the early 2000s, which is called the beginning of Japan's low growth period. We may also be in a situation where we have no choice but to buy a house with a 30-year maturity.
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