Cooler home prices in Seoul support Bank of Korea’s policy pivot
Growth in prices slowed in September to 0.54% from 0.83% in August
HOME price gains in Seoul lost momentum, in data consistent with the Bank of Korea’s (BOK) decision last week to commence a policy pivot.
Growth in prices slowed in September to 0.54 per cent from 0.83 per cent in August, according to figures released by the Korea Real Estate Board on Tuesday (Oct 15). It was the first loss of momentum since January.
The results add to early signs of cooling in the market that the central bank cited on Friday when it cut its benchmark interest rate to 3.25 per cent.
South Koreans tend to hold an overwhelming share of their wealth in residential properties, and mortgage loans to support apartment purchases in Seoul are a key source of risk for the BOK’s mandate of maintaining financial stability.
The BOK proceeded with its pivot to an easing cycle based on early indications that the property market was cooling, as authorities weighed the risk of keeping the rate restrictive too long when consumer inflation has eased considerably and the economy needs to safeguard its growth potential.
Other central banks shifting their courses to easing gave the BOK more scope to change its own trajectory.
In the months preceding its rate cut, the BOK had cited a faster-than-expected recovery in Seoul’s home prices as a key incentive to keep the benchmark rate at a restrictive 3.5 per cent, in what became a record-long holding pattern.
Concerns that rising home prices might drive up household debt persist among board members, likely keeping them cautious about the pace of easing.
Home prices and their impact on household debt will figure high among factors to consider as the BOK sets the pace of easing, governor Rhee Chang-yong told lawmakers on Monday. He said he would be watching to see how Friday’s rate cut affects housing prices and debt. BLOOMBERG
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