The Bank of Korea has issued a warning stating that, at this rate, it will not be able to control housing prices. Let's discuss this further. Recently, the Bank of Korea released a report and press release, which we will talk about. The current governor, Lee Chang-yong, is taking a different approach compared to previous governors. What this means is that he recently made his first visit to the Ministry of Economy and Finance. This is significant because the Bank of Korea typically operates somewhat independently from the Ministry of Economy and Finance. The Ministry is focused on stimulating the economy and promoting growth, which is its primary goal. However, the Bank of Korea has to exercise some restraint because, if the government pushes too hard for growth, it could lead to excessive measures.

I have to be a bit cautious, but despite that, I will steadfastly move forward. It’s a department where we inevitably have some conflicts. Because of this, we’ve been somewhat distant, just looking at each other from afar. However, with recent visits, there seems to be a somewhat different approach being taken. The reason for this is that the current governor of the Bank of Korea has been making various remarks. I understand that these comments stem from concerns about the future of our country. However, he is discussing topics that are not typically addressed by the governor of the Bank of Korea, such as policies and politics. On the positive side, one could say that as an economic expert, he is expressing a desire to change the current structure because he finds the situation in our country very frustrating.

To discuss such matters, it is indeed necessary to be in a different setting. As a result, various discussions are emerging in the market. However, one major issue that this individual sees is the current housing prices. The high housing prices are a structural problem in Korea. If this structural issue is not resolved, housing prices in Korea will continue to rise, and as they do, Korea's competitiveness will gradually decline, leading to further problems. Therefore, the individual is suggesting that we should consider making changes. They are gathering banks to emphasize the need for better management of household debt, highlighting that this situation is serious. This has been a recurring topic, and they continue to address it even now.

The reason I keep emphasizing this is that there is now a report from the sky that contains this information. What I took from the report is that household loans are currently increasing significantly. This is an advisory note; household debt is rising to around 30 trillion won. Of course, there are times when it decreases, but overall, household loans are on the rise. When people take out loans, what do they usually do? In our country, they take out mortgage loans, right? They use these loans not only to buy houses but also to pay for jeonse (long-term rental deposits). So, both jeonse and property purchases involve loans, which means household loans continue to increase. Consequently, people have no choice but to pay interest. Meanwhile, housing prices are surging, especially in Seoul, leading to increased relative deprivation among people. As a result, their actual disposable income for consumption is decreasing. This is the current situation.

Isn't it just a vicious cycle that keeps repeating? It would be nice if the money flowing into real estate could be directed elsewhere. Right now, the KOSPI index is stuck in a range, and it's become quite famous for that. It briefly hit 3,000 points, but then it dropped significantly, fluctuating around 2,500 points for almost the past two years. If the stock market could become a bit more advanced and start trending upwards, perhaps people in our country would think, Let's invest in stocks instead of real estate. If they invested in stocks and made money, it could reduce the phenomenon of money being concentrated in real estate. Everyone knows that the KOSPI is struggling, so money isn't flowing there. Instead, all the available funds keep pouring into real estate. But when we look at where else the money is going, it turns out that it’s all going into stocks. This is because money...

If there is a lot of money, one might be able to buy some real estate, but isn't it true that there are many more people with relatively less money? For these individuals, trying to buy a house is not feasible. When they invest in Samsung Electronics, they end up losing money and feel frustrated. So, they decide to go overseas. As a result, investments in foreign securities are continuously increasing. This means that the scale of net investment by Koreans is expanding. Of course, there are foreign investments as well, but we are purchasing a lot of overseas assets. Many individuals are involved in this, and they are indeed buying foreign stocks and bonds. On top of that, money is not flowing into the local market, and it’s flowing even less now. The trading volume is decreasing, and transaction amounts are plummeting. Therefore, it is only natural that stocks are struggling and not performing well.

As a result, foreigners are also leaving here, and this is creating a vicious cycle. The only asset or means of wealth accumulation we can rely on right now is real estate. The real estate market had been declining steadily, with January 2023 marking the lowest point. Since then, it has quickly recovered, and expectations have started to rise. Last year, people were saying that this was just a dead cat bounce or a slight rebound before another drop. However, very few people are saying that now because there is a clear upward trend. 

But there is a problem: only the metropolitan area is rising, and within that, only Seoul is experiencing growth. This data reflects the housing transaction prices, which likely includes both apartments and villas. If we look only at apartments...

It’s not a 2% increase; this year, it has risen almost 6 to 7%. It’s quite a rapid and significant increase. Remember back in 2021 and 2020 when there was a huge surge? While it’s not exactly at that level, it has shown a similar upward trend for a considerable time. Because of this, there’s a lot of talk about whether one should buy a house in Seoul right now, and people are concerned about what to do regarding the rising house prices. The reason for this worry is that the prices have risen so quickly in such a short period. However, in the provinces, prices have not increased at all; in fact, there are many areas where prices are actually dropping. This is contributing to a growing sense of polarization and deprivation. Nevertheless, despite this, the rental market is also rising across the board. Rental demand from actual residents has somewhat stalled.

You could say that the gap is narrowing. Because of this, when it comes to forecasting housing prices, if you ask whether housing prices will rise in the future, a much larger number of people respond that they will. Based on the 100-point scale, it currently stands at 118. So, it indicates that housing prices will continue to rise, but specifically in areas like Seoul and the metropolitan area. However, are there many people looking to buy? Well, not really. During the last market upswing, prices surged across the board, with properties worth 500 million, 1.5 billion, and even 3 billion all increasing in value. But that is not the case now; only specific regions are seeing price increases. Therefore, while the absolute buying sentiment index is still not high, when asked if housing prices will rise, the majority respond that they will.

It is thought that the situation is the same. Therefore, since the prices are rising only in Seoul, one should buy in Seoul, but it is too expensive, so people are considering purchasing in the surrounding metropolitan area. This has led to an increase in transaction volume, as summarized by the Bank of Korea. Recently, things have calmed down a bit, but discussions about the seriousness of real estate project financing continue. When looking at the Bank of Korea's reports, it indicates that the situation is not as dire as it seems. Why? Because there are regulatory ratios in place, and banks are accumulating capital well beyond those thresholds. While it can be viewed as a crisis situation, there is enough resilience to withstand a full-blown financial crisis. However, aside from banks, non-bank entities such as insurance companies, savings banks, and securities firms may need to feel a sense of urgency. This is because they are more vulnerable in the real estate market.

The market was so good that the first financial sector was still somewhat conservative and primarily focused on the safest senior positions. They believed there was potential for rising house prices and real estate, so after the first financial sector entered, a lot of securities firms and savings banks started to follow. However, once house prices began to fluctuate and construction costs started to rise significantly, it seemed that sales would not go through. Now, initial investors, including those from securities firms and savings banks, are starting to feel the pressure. As a result, there have been delays in payments, which is indeed concerning. However, the question remains whether these institutions will fail. Regardless, there are regulations in place that they must adhere to, and they are currently managing to secure some capital and maintain their financial capacity. So, in some cases,

It is possible for projects to fail, but that doesn't mean the financial system is collapsing. There is a crisis in the PF sector, and while it needs to be addressed, it is not at a level of complete collapse. However, that does not mean there are no problems. The current outstanding balance of mortgage loans shows that the loan-to-value (LTV) ratio exceeds 60%. This means that, regardless of the situation, loans have been extended for more than 60 to 70% of the house prices, which has likely increased due to falling property values. Consequently, the outstanding balance of these loans is increasing, and the delinquency rate is also rising. Moreover, the real economy, particularly for small business owners and the self-employed, is experiencing a very tough situation. Many small business owners are saying that it is even harder now than during the COVID-19 pandemic, as they are typically running businesses in commercial buildings.

There are many small businesses on the first and second floors, but now that sales are not good, they are busy paying interest and monthly rent, and as a result, the number of vacant spaces continues to increase. Given that the economy is not doing well, in order to solve this issue, we need to provide some support so that they can endure. To create some leeway, shouldn't the interest rates be lowered? This is a topic that keeps coming up. However, the Bank of Korea is questioning whether lowering interest rates is the right move. They are asking if it is appropriate to lower rates, as it seems that lowering them could lead to an increase in housing prices. According to reports, when interest rates are lowered, it is seen as a factor for rising housing prices. In the process of this being reflected, the weekly transaction price increase rate has exceeded 0.2% in more than 15 areas of Seoul. So, out of the 25 districts, nearly most of the Seoul area is affected by interest rates.

It seems that there will be a decrease, and as this expectation begins to take hold, the weekly trading price increase rate is 0.2%. So, simply put, let's multiply this by 52. This is technically a compounding increase, but let's just multiply by 50 for simplicity. What does that give us? It means an increase of about 10%. If we calculate this over a year, it translates to a 10% increase on average. In reality, some areas are seeing increases of 15% to 20%. This would lead to a significant surge in prices. Because of this, there are growing concerns. Now, the U.S. is also lowering interest rates, and market interest rates are dropping, causing housing prices to increasingly concentrate in Seoul. In this situation, if Korea also lowers the base rate, what will happen? A reduction of 25 basis points means a drop to 0.25. Typically, they lower it by 0. After this, there’s a clear shift.

The moment it drops, the price in Seoul will rise by 0.83%. It will increase by 10%, which means it will rise by 11%. The fact that the average is increasing suggests that the apartments in the higher tier could rise by about 2 to 3% more. This makes the decline a bit burdensome. Now, the 0.43% refers to the national housing prices. The national average is increasing by 0.4%, while Seoul is at 0.8%. Since we're talking about housing prices, if we separate it by apartments, it will likely rise even more. Even if it drops by just 0.2%, it feels like it could increase by about 2 to 3% more. So, there’s a concern about whether it can drop or not. The reason for this is that when interest rates are lowered, the demand for housing has already been strong. Since the beginning of the year, around March, it has continued to increase, and by July, the transaction volume for Seoul apartments exceeded 8,000. This indicates a significant amount.

It's been over ten years since we've surpassed the average. However, if interest rates are lowered further from here, people will think that there will only be more rate cuts in the future, which makes them want to buy more homes. But there's also a dilemma here. Like the content of the report mentioned earlier, there is a reluctance to lower rates, and that raises concerns. Why is that? First of all, looking at the report, it's clear that real estate project financing and financial institutions are not without their burdens. There is a lot of money tied up and stuck. Additionally, there are places that have reached their limits and are barely holding on. We can't completely collapse this system, so we need to keep it afloat a bit. If we can provide some relief while they are holding on, it would be good to help them survive on their own. However, looking into that...

In fact, when financial conditions are eased, meaning when interest rates go down, I think the delinquency rate will also decrease. Many people misunderstand the serious situation regarding household loans. Some believe that those who have taken out a lot of mortgage loans are in a vulnerable position. While it is true that some people have borrowed too much money to buy their homes, the more serious cases involve those who are self-employed or running a business. They did not take out loans to invest in real estate; instead, they used the mortgage on their existing homes to secure loans for their businesses. Many people have done this since the COVID-19 pandemic, thinking, I need to survive, and the only loans available are mortgage loans. So they took out these loans and injected the money into their businesses, but ended up losing money.

After forgetting about it, I realized that the house is mortgaged for a loan, and the business is struggling. So these people are finding it difficult to get by day by day. The delinquency rate among these individuals is high, but it will likely decrease if interest rates are lowered. In any case, the burden of interest on ordinary citizens is currently serious, and financial institutions involved in project financing are also facing challenges. It seems necessary to lower rates to provide some relief.

Moreover, there are many marginal companies. What are marginal companies? They are sometimes referred to as zombie companies. They earn money for a year, say 10,000 won, but their interest is 1,000 won. In this case, these companies are bound to go bankrupt. But is it just okay if these companies fail? No, there are likely tens of thousands of people working at these companies. If they suddenly become unemployed, then...

The economy is already feeling sluggish, and it seems to be falling into a vicious cycle. It's like a Möbius strip, becoming an increasingly inescapable loop. This is a concern we have. When looking at the economy or the financial market, there's a thought of how to manage this situation; we feel the need to lower something, but on the other hand, if we do lower it, it seems like we won't be able to prevent the rise in housing prices in the metropolitan area, especially in Seoul. We find ourselves in a dilemma. Ultimately, it comes down to this: if interest rates are lowered, there will be an effect on rising housing prices, but appropriate macroeconomic stability policies will also be required. We need to prepare additional measures in advance and ensure good policy coordination. I hope the government can manage this well with other policies. From the government's perspective, the question is, What should we do? Ultimately, we just hope they handle it well.

It's now over. So, from the government's perspective, while it's certainly important to control the rise in housing prices, the more urgent issue is that the economy is really struggling. Right now, small business owners and self-employed individuals are on the verge of collapsing. A reporter asked the Minister of Economy, Choi Sang-mok, whether it is more important to revive domestic demand or to manage housing prices and household debt. In other words, he directly asked if they would tolerate an increase in housing prices and household debt to boost domestic demand. He was essentially asking them to choose one of the two. The government's response was that, yes, if that's the case, then reviving domestic demand is indeed more important. This is because, while housing prices may fluctuate, if domestic demand collapses, recovery becomes very difficult. Therefore, the government is continuing to adjust interest rates.

There is a situation where people are asking for a reduction, saying that the current economy is not doing well. Of course, they express respect for the Bank of Korea's decisions, but they also say, I respect you, but please listen to me. This has led to ongoing pressure. As a result, there is continuous speculation about whether interest rates will be lowered on October 11. Looking at the Bank of Korea's reports and the comments from the governor, it seems likely that they will not lower the rates this time. The next opportunity is on November 28, and there is a sentiment that rates might be lowered then. In fact, many in the financial sector are betting that it will not be this time but the next time. This is partly because there was the Chuseok holiday in September, which came earlier this year. Right after Chuseok ended, it hasn't been long since then.

In October, there are many shares to be distributed. As a result, the trading volume is not stabilizing. This is what the Bank of Korea is saying; it is difficult to determine whether the trend has stabilized or if it will bounce back again. Therefore, if interest rates are lowered now, there are concerns that buying momentum might reignite. In August and September, the trading volume did pick up significantly, but then it dropped sharply. The question is whether this is due to the Chuseok holiday effect or if it was a trend that was already set to decline. I need to assess this by looking at the data from October and November, and it seems like there is a direction towards possibly lowering rates by the end of November. Overall, considering the current situation where there are many factors contributing to rising housing prices, the government has imposed strict lending regulations. They have urged the Bank of Korea to lower interest rates; otherwise, housing prices will continue to rise.

While trying to catch it, they keep appealing, saying that it's really hard. I'm asking if I need to be stronger. The Bank of Korea is saying, Could you do a bit more? No, we need to lower it, but if we lower it, it might look like we're carelessly lowering interest rates and causing housing prices to rise, so it seems like you need to manage that. But then they worry about what happens if the economy collapses. So, they're contemplating that. They're saying, Korea needs to figure something out, so you should do well. Meanwhile, my report suggests that the government needs to do well, but the government is constantly asking, What should we do? It seems like the market is quite complicated and tangled. If you think about it from a different perspective, there must be many people pondering what to do in such situations, and they often refer to past cases.

When we look at the situation, especially now that there are loan regulations in place, there is a recurring pattern. Loan regulations are not implemented when house prices are falling; they are always enforced during times of significant price increases, particularly when there is a short-term surge in prices. This is because it has the most definite effect. Therefore, we need to acknowledge that we are currently in an upward trend. However, because strong regulations have been put in place, a brake has been applied. At this time, the market typically experiences a state of confusion. People are uncertain about what will happen next. Additionally, transactions tend to pause. There may be individuals who were planning to sell their homes, thinking, I need to sell this to move to another place, or I could sell this and invest in U.S. stocks. But when they are ready to sell, there are no buyers. Conversely, there are those who want to buy but are unable to do so.

In such a situation, I should have sold by now. I'm currently debating whether to sell in November or December. I'm considering whether to sell at a lower price or just throw it out there. This kind of thinking arises, right? In this atmosphere, patterns from the past have shown that something usually comes up during these times. For instance, a trading volume that typically doesn’t appear suddenly comes into play. We can adjust the asking price a little bit. From the buyers' perspective, this might actually be an opportunity. Why? Because just last summer, people couldn't even ask for a discount. Instead, many buyers were told that if they wanted to negotiate, the price would increase by two million won. So, in this atmosphere where people couldn't even speak up, if trading suddenly decreases, there might be a slight opening. Therefore, during times like this, we should be cautious.

It would be good to do some research. Some people might say, Well, it's already gone up, but in such cases, it's important to focus not just on what's already risen, but also on those that are on the rise nearby. There are some stocks that are bouncing up and down, and it might be better to pay attention to them first. Often, we only see the ones that have already increased, thinking, I need to go there, but rather than hoping that this stock will continue to rise, it's more likely that those nearby can reach at least the halfway point. So, it would be good to assess that first. There are places that had a bit of an upward trend but have become quiet again with the recent discussions about loans. I think it would be a good idea to look into those as a starting point.

"이대로면 집값 못 잡는다" 한국은행의 경고

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