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Households are increasingly feeling the pinch of worsening financial troubles. Expenses are rising from inflation and high interest rates while assets are declining in value on faltering stock and real estate prices. One out of three families is running a deficit and household debt is snowballing, raising worries that even middle class households may go bankrupt.
¡ß Falling surplus, rising debt
Soaring inflation this year has dropped the surplus (income minus expenses) of Korean households while household debt is reaching new records. The average monthly surplus margin of families with over two members fell 16 percent from W640,000 in last year's fourth quarter to W540,000 in this year's first quarter (US$1=W1,009). The bottom 20 percent of households ran a W290,000 deficit in the last fourth quarter which grew nearly 50 percent to W440,000 in the first quarter. Meanwhile as home mortgage loans soar, average debt per household rose from W38.4 million late last year to W39 million as of late March.
Moreover, interest rates are rising, adding to the burden of principal payments. Interest rates on home equity loans (based on Shinhan Bank's highest three-year fixed rate) grew 1.18 percentage points (annual 7.95-9.13 percent) in one year. A loan for W100 million taken out a year ago now includes an additional W980,000 per year in monthly interest.
Meanwhile plunging stock and real estate prices are eating up households' asset value. In an analysis of capital invested in 10,252 funds run by 58 asset management firms and their current value, investors suffered a loss of W22.36 trillion (as of Thursday) from investments at home and abroad. An average W14.6 million invested in a single account has lost W895,000. Falling home prices are spreading from the reconstructed complexes in Gangnam, such as in Songpa district (-1.4 percent), to the wider metropolitan area (Gwancheon -7 percent, Yongin -1.6 percent) and provinces (Daegu -1.1 percent).
¡ß Deficit households to surge
Experts say deficit households will increase sharply as inflation and interest rates will continue to rise and household insolvency worsens in the second half. Nearly 32 percent of the 11.6 million households nationwide were in the red in the first quarter, up from 29 percent in the previous quarter. Park Deok-bae, a researcher at the Hyundai Economic Research Institute said, "As individual bankruptcies soared when the asset bubble burst in Japan in the late 1990s, bankruptcies among Korea's middle class could follow if property prices plunge or interest rates rise further."
(englishnews@chosun.com )
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