Interest Hike to Send Apartment Prices into Tailspin

Every time the Bank of Korea hikes the base interest rate by 0.5 percentage point, apartment prices across the country fall 1.4 percent two years later, according to a study by the central bank.

The bank's simulation shows a half-percentage-point hike leads to a 0.25 percent to 0.35 percent drop in apartment prices a year later, and a 0.65 percent to 1.4 percent decline two years down the road.

Since apartment prices across the country fell 0.2 percent in the first half of this year and 0.5 percent in Seoul, a 1.4 percent decline is significant.

But the bank added, "We only considered interest rates as the sole factor, but home prices are also affected by supply, the government's housing policy and a wide range of other factors."

Housing prices face an uncertain future after spiraling out of control over the last few years. Experts forecast a downturn as the bubble bursts.

Kookmin Bank said apartment prices compared to average annual income were 7.3 times higher in the first quarter of this year, compared to the average 5.4 times over the past decade.