The main variable influencing house prices is the ‘standard interest rate’…has little effect on housing supply

An apartment complex in downtown Seoul seen from Namsan Mountain in Jung-gu, Seoul on the 3rd. Reporter Seong Dong-hun

A study has found that the most important variable influencing house price fluctuations is the base interest rate. The effect of housing supply on house price fluctuations was less than the effect of interest rates.

According to the report entitled “Analysis of the Impact Relationship between the Housing Market and Monetary Policy and its Implications” published on the 30th by a researcher at the National Research Institute for Human Settlements in Italy, between January 2011 and December 2021, interest rates, loan regulation, housing supply, demographic structure, economy, etc. As a result of analyzing the individual variables, it was found that the monetary policy through the base rate has the greatest impact on the sale price of houses. As the level of financial intervention in the housing market increased, such as mortgage loans and deposit loans during the 2008 global financial crisis, the impact of interest rates widened.

As a result of analyzing the Korea Real Estate Agency’s apartment sales price index, the effect of interest rates on housing price fluctuations was absolute at 60.7%, and loan regulations were found to be 17.9%. The impact of housing supply was only 8.5%. The impact of demographic structure such as population growth and generational separation was 8.5%, and the impact of the economy was the lowest at 4.4%.

Even based on the KB Apartment Sales Price Index, a private survey, the results were the same. Although there was a difference in proportion, the impact of interest rates was highest at 56.1%, followed by loan regulation at 19.3%, housing supply at 11.9%, and demographic structure at 10.3%. The impact of the game was only 2.5%.

In fact, at the same time as the cases of Corona 19, the basic rate of the Bank of Korea maintained for two years from 2020 to 2021, when house prices rose rapidly around the world, a very low interest rate stance of 0.5 to 0.75% per year. In addition, as liquidity overflowing the market has flowed into the real estate market, house prices have risen sharply all over the world without exception.

After August 2021, a full ‘transaction cliff’ began as the atmosphere for an interest rate rise was detected, but at the time, there was also an abnormal phenomenon where house prices continued to rise without any other factors rising. Usually, when the number of transactions falls, the price of a house falls. House prices have been in full decline since August last year, after the Bank of Korea started raising the base rate one after the other.

As a result of a reflection of the asking price, the Korea Real Estate Agency and KB sales price index had changes in the 2nd and 3rd and 4th and 5th places based on the real transaction price index of the Korea Real Estate Agency . Based on the actual transaction price index, which has been digitized focusing on apartments where actual transactions took place, the impact of interest rates was still the highest at 45.7%, but the proportion of loan regulations fell to 13.4%, and the housing supply was 18.4%, which had the biggest impact on loan regulations It was followed by 11.5% of the economy and 11.0% of the demographic structure.

The biggest factor that still affects the purchase of a home is ‘interest rate’, but when we analyze only cases where actual transactions have taken place, it can be seen that the amount of housing supply also has an effect to some extent.

Based on this analysis, Lee Tae-ri, a researcher, said, “It is very important to establish a close cooperative system with the financial authorities to control volatility in the housing market, and look for ways to include information about housing prices such as costs houses. in the price index, which is the target of monetary policy. That needs to be done,” he suggested.

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