Housing Prices on a Downward Spiral

The real estate market is expected to take a heavy blow as the Bank of Korea raised the benchmark interest rate by an unprecedented 0.5 percentage points on Wednesday.

That means housing loans will become prohibitively expensive. Real estate analysts believe that this could accelerate a downward spiral in housing prices at a time when demand is already plummeting.

The summer holidays are also just around the corner, and they are typically the low season for the housing market.

Apartment sales have plunged across the country while the base interest rate has now reached 2.25 percent. According to the Korea Real Estate Board, only 7,917 apartments changed hands in Seoul in the January-May period, a mere third of the 25,159 a year earlier. Apartment prices have taken a downward turn as sales dwindled and many owners put their units up for sale to take advantage of a tax reprieve. 

According to real estate data provider Asil, 65,183 apartments were on the market in Seoul as of Wednesday, up 53 percent from 42,594 ago. Nationwide prices were either flat or declining since they dropped 0.02 percent in February.

"Fewer people will want to buy houses in the wake of the latest interest rate hike and across-the-board economic downturn," said Kim Hyo-sun at NH Nonghyup Bank.

And Ham Young-jin at real estate app Zigbang said, "Few people would like to buy houses despite the high interest rate while there’s still a high chance of interest rates increasing again by year-end. Housing prices are not going to rise for quite a while."