BOK governor moves to temper rate cut hopes as Seoul housing prices swell

Economy

BOK governor moves to temper rate cut hopes as Seoul housing prices swell

Published: 12 Jul. 2024, 18:13

SHIN HA-NEE
shin.hanee@joongang.co.kr

Bank of Korea Gov. Rhee Chang-yong speaks during a press conference after the Monetary Policy Meeting held at the bank in central Seoul on Thursday. [JOINT PRESS CORPS]

Seoul’s real estate prices are rising on the back of growing anticipation of lower interest rates amid slowing inflation in both Korea and the United States.

While the Bank of Korea indicated a shift toward rate cuts on Thursday following its rate-setting meeting, the central bank warned market participants against “excessive” expectations and burgeoning household debt.

The average selling price of apartments in Seoul from July 2 to 8 increased 0.24 percent from a week prior, according to the latest weekly data compiled by the Korea Real Estate Board, the steepest increase since the 0.26 percent recorded in September 2018.

Apartment prices in Seoul have been on the rise for sixteen consecutive weeks, with the pace of weekly increases growing as of late. Posh neighborhoods in the capital drove the uptick, with Seongdong District in eastern Seoul seeing a 0.52 percent increase in selling prices.

Public sentiment is also betting on the uptrend in housing prices to continue.

According to a survey conducted by Gallup Korea from Tuesday to Thursday, 42 percent of respondents expect housing prices to increase through the next 12 months, while 23 percent project a decline and 26 percent expect prices to remain flat.

The result runs in sharp contrast to sentiment earlier this year, when only 21 percent expected an increase while 45 percent projected a decline, mainly due the tightening of household loans.

As the anticipation of lower interest rates has been driving up apartment prices, the central bank chief warned against excessive optimism.

“Given the inflation and financial situations we are facing now, most Monetary Policy Board members agree that the current market expectations for rate cuts are somewhat excessive, and that it is unfavorable for real estate prices to rise on the back of such expectations,” said Bank of Korea Gov. Rhee Chang-yong during a press conference after Thursday's rate-setting meeting.

The central bank’s Monetary Policy Board kept the base rate unchanged at 3.50 percent, but said that the board will “examine the timing of a rate cut,” signaling a pivot toward lowering rates.

“The housing price increase in the greater Seoul area has a significant impact on household debt, and therefore we believe that it is time for us to keep a close eye on the situation in order to lower the household debt level in the mid to long term,” said Rhee.

Meanwhile, Land Minister Park Sang-woo described the recent growth in Seoul apartment prices as “temporary” and not a shift in the general trend, attributing the increase to rate cut expectations.

"As managing the household debt level is the top priority for the government, we believe that [the increase] driven by financial factors will not last long,” said Park during a press conference on Thursday.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]