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| Apartment complexes in Seoul are seen in this file photo taken on Jan. 24. Yonhap |
By Lee Min-hyung
Korea's housing price valuation index is on the gradual decline after hitting a 10-year high in the second quarter of 2021, as the real estate bubble is showing clear signs of bursting on successive key rate hikes over the past year, data from the Bank of Korea (BOK) showed Wednesday.
According to the central bank, the nation's Z-score index came in at 1.5 between April and June 2021, but then it turned downward until the first half of 2022. The index fell to 0.8 during the second quarter of last year, the BOK data showed. The Z-score index is used to calculate the housing price level by the International Monetary Fund (IMF). The Korean central bank readjusted the index for the local housing market.
The analysis indicates that housing prices here reached its peak in the second quarter of 2021. The BOK also said that the Z-score index has since declined due to rising interest rates on mortgage loans triggered by global monetary tightening.
Chances are that the index has possibly fallen below 0.8 in the second quarter of last year due to steep rate hikes that remained in place throughout 2022, according to the central bank.
"When loan interest rates rise, this comes as downward pressure on housing prices," an official from the BOK said. "The high interest rate affects the housing market in a way to alleviate overvaluation. Given the fact that the key rate has been on the continuous rise last year, there is high probability that the Z-score index will report a gradual decline in the latter half of 2022."
Starting from August 2021, the BOK ended its cycle of freezing the key rate due to the pandemic. The central bank has since increased the key rate to 3.5 percent, which the monetary authority said played a central role in speeding up the housing market crash.
The Z-score index was zero as of the first quarter of 2019, but soared for more than two years on the key rate that was then in the 1-percent range and the real estate policies of the previous Moon Jae-in administration. But the ongoing cycle of key rate hikes put the brakes on once-bullish market sentiment.
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