Surging household debt sounding alarms
Published: 10 Aug. 2023, 19:13
The rise in mortgage loans is connected to the revival of the housing market in Seoul and other parts of the capital region. Apartment sales have also gained life. Transactions of apartments across the nation surged 11.7 percent to 36,000 households in June from 32,000 units in February. Sales in the capital region where apartments are pricey jumped 23 percent to 16,000 units from 13,000 units during the same period.
The government as well as households must not take the rise in household debt lightly. The minutes from the Monetary Policy Board in July showed all six on the board — excluding the chair, Bank of Korea (BOK) Governor Rhee Chang-yong — expressed deep concerns over the rise in household debt. Five members argued that an additional rate increase would be needed if the financial imbalance from a disproportionate increase and share of household debt threatens Korea’s sustainable growth and financial stability. They stressed that containing household debt should be a top priority for the economy.
The BOK has kept the base rate steady at 3.5 percent for four consecutive meetings after the last hike in January. But the floating rate on mortgage loans and other market yields have been on the rise. The lending rate by banks ranges from the 4 percent level to the 7 percent level. Hopes that monetary tightening will end in the U.S. to bring about a similar result in Korea are too naive. It would take some time before the U.S. deliberates the rate cuts, which means the high rate level would stay for a while. Individuals must think twice before jumping into the housing market without deep calculation on the rate burden.
The government must keep close tabs on the market so that apartment prices in Seoul and other popular areas do not heat up as during the pandemic. Recovery in the housing market can ease the risks from the project-financing market in local regions, but also can renew the frenzied buying spree. The government must scrutinize if its deregulation in the housing market partly fueled the spike in household debt. It must moderate the speed of deregulations if necessary.
with the Korea JoongAng Daily
To write comments, please log in to one of the accounts.
Standards Board Policy (0/250자)