(Bloomberg) -- Seoul apartment prices notched their biggest weekly gain in almost six years, adding to evidence supporting the Bank of Korea’s caution over the timing of an interest-rate cut.
Apartment prices in the capital climbed 0.24% in the week ended July 8 from the previous seven-day period in the biggest rise since September 2018. They also extended gains to 16 consecutive weeks, according to data from the Korea Real Estate Board.
The data came after the central bank kept its benchmark rate at a restrictive level of 3.5% on Thursday and Governor Rhee Chang-yong sought to temper expectations of a near-term policy pivot, citing a faster-than-expected rise in the housing market among other factors.
While the bank is growing confident that inflation will continue to slow, it is taking the home-price gains in greater Seoul areas more seriously than before, Rhee said.
Seoul property prices have accelerated since early this year, with rate-cut bets luring home buyers to apartments in Seoul’s affluent Gangnam district and near the city center, which are popular spots among investors and high earners. Despite the demand increase, the supply of new homes has been limited as construction costs soared due to prolonged inflation and credit concerns weighed on the industry.
“Home purchase inquiries have continued and selling prices have risen mainly in preferred apartment complexes with good residential conditions,” the state-run Korea Real Estate Board said in a statement. “The price increase is expanding as expectations of home price gain spread to nearby complexes as well.”
The latest data will add to the central bank’s caution as it mulls the timing of a possible rate cut. Looser monetary policy risks reigniting the housing market and inflation, which has made global central banks wary of premature rate cuts. That has resulted in borrowing costs staying higher for longer in the current economic cycle.
The BOK has three rate decisions left in 2024, with economists largely split between August and October as the timing for a cut.
“Given that the bank has been paying close attention to financial risks stemming from the high household debt load, strong growth in outstanding mortgages will be a factor holding the bank back,” BMI, a unit of Fitch Solutions, said in a report on Friday.
What Bloomberg Economics Says...
“We think board members are not satisfied with long-term interest rates running below the policy rate. They may worry that rate cuts could spark home price rise, causing reputational risk for the BOK.”
- Hyosung Kwon, economist
For the full report, click here
--With assistance from Sam Kim.
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