Dream homes now costly mistake as rates rise and prices fall

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Dream homes now costly mistake as rates rise and prices fall

An apartment complex in Songpa District, southern Seoul, on Tuesday. [NEWS1]

An apartment complex in Songpa District, southern Seoul, on Tuesday. [NEWS1]

 
Homeowners who bought recently on the hope of a gain and driven in many cases by a fear of missing out are finding their bets going bad as interest rates rise and prices start to fall.
 
Many people in their 20s and 30s are the ones getting squeezed with real estate dreams running into the reality of higher rates and a possible recession.
 
"I bought a house because I was worried about ending up on the streets," said one house buyer in his mid-30s. "Now I feel suffocated because I am house poor."
 
The value of his apartment, which is in Nowon District, northern Seoul, is down 100 million won ($77,000) and there are no buyers in the market for the property.
 
As of June 27, the average price of apartments in Nowon District is down 0.59 percent since the beginning of the year. In Seoul overall, prices are down 0.19 percent.
 
Young people have been especially hard hit by the stagnation in prices.
 
In the second half of last year, people in their 30s or younger made 42 percent of all apartments transactions in Seoul, according to the Korea Real Estate Board. In the first half of 2020, they bought 34.6 percent of the apartments.  
 
Nowon District has been a popular neighborhood for young home buyers. In 2020 and 2021, people in their 20s and 30s bought 14,283 units in the district.
 
"Many young people are asking if they should sell now," said a real estate agent in Junggye-dong, Nowon District.
 
In Yongin, people in their 20s and 30s purchased 12,522 units in 2020 and 2021, in Goyang, they bought 12,294 units and in Suwon 12,185 units.  
 
Between January and May, among the 7,917 units bought in Seoul, 38.7 percent were purchased by people in this age group.
 
According to the Ministry of Land, Infrastructure and Transport's real estate transaction price disclosure system, a 100.51-square-meter (1,081-square-foot) apartment in Yeongtong District in Suwon traded at 1.41 billion won in February. On June 22, a similar apartment in the same area went for 1.03 billion won.
 
An 84-square-meter apartment in Seongbok-dong, Suji District in Yongin sold for 1.17 billion won on June 18, down from 1.49 billion won in October.
 
"We've decided to put off buying an apartment as interest costs have increased recently while apartment prices seem unlikely to rise for the time being," said a woman who is getting married in September.  
 
According to a study by Zigbang, a real estate information provider, when the annual interest rate on loan is 4 percent, the monthly mortgage payment on a Seoul apartment will account for 45 percent of the roughly 4.19 million won disposable income of an average urban worker.  
 
Mortgage payments will on average increase to 62 percent of that disposable income if interest rates rise to 7 percent.  
 
The government recently adjusted policy taking the loan-to-value (LTV) ratio from a range of 60 to 70 percent to 80 percent for first-time home buyers.
 
The higher LTV ratio comes with no conditions including the location of the apartment or income.  
 
"As interest costs increase, it is more expensive to buy apartments with loans," said Kim Hyo-sun, a senior real estate analyst at NH Nonghyup Bank.
 
Kwon Il, head of the research team at Real Estate Info, said first-time home buyers in their 20s and 30s should consider saving up the capital that they would use to buy an apartment.  
 
 

BY KIM WON [lim.jeongwon@joongang.co.kr]
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