South Korea’s central bank warns of overpriced housing market, excessive debt

SOUTH Korea’s central bank warned that housing prices remain overvalued relative to basic economic conditions and household debt levels are excessive.

“Housing prices remain at a high level, out of sync with income, and the housing price-to-income ratio is very high even compared with major countries,” the Bank of Korea (BOK) said in its monetary credit policy report on Thursday (Sep 14).

South Korea’s house price-to-income ratio, or PIR, is 26, according to cost-of-living data website Numbeo. The widely used measure of housing affordability means a citizen needs to save 26 years of annual income to buy a house. This is more than double the median ratio of other countries, the BOK said.

“It’s natural to say South Korean house prices are overvalued as you are unable to afford a home without help from your parents if you’re getting married,” Hong Kyung-sik, head of the central bank’s monetary policy department, said in a press briefing.

Housing prices rose in July after sliding for more than a year, and banks’ household loans have also expanded. Unlike major countries, household debt in South Korea has continued to increase without deleveraging, reaching a level that undermines macroeconomic and financial stability, the central bank said. BLOOMBERG