Aggressive interest rate hikes in major countries, including the US, trying to catch inflation are also having a full-fledged impact on the real estate market.
House prices have risen sharply in the past few years thanks to countries releasing huge amounts of money and adopting low-interest rates to overcome the COVID-19 pandemic, but now the exact opposite is happening.
Although there are differences between the collapse of the house price bubble and the short-term correction, there are many forecasts that the real estate market will continue to weaken amid the rising interest rates.
Korea is in the same situation.
The problem is that at the rate of decline, steep declines in house prices can directly or indirectly affect the economy, such as worsening household financial soundness and shrinking domestic demand.
The increase in the policy interest rate (base rate) by central banks in each country leads to an increase in market interest rates, blowing cold winds into the real estate market.
The Organization for Economic Cooperation and Development (OECD) evaluated that the housing market is weakening due to rising interest rates in its 'Interim Economic Outlook' report released on the 26th.
The OECD said that home sales, mortgages and home starts are falling sharply in many countries, while home prices are falling month-over-month in some countries.
International Monetary Fund (IMF) experts, including Andrea Degui, have diagnosed that the industrial and residential real estate market is cooling down due to global financial tightening, including the central bank's rate hike.
In the United States, home prices are on the decline.
Home prices fell 0.77% in July from the previous month, according to a study by US mortgage analysis firm Black Knight.
It was the first decline in nearly three years and the biggest decline since January 2011.
The S&P CoreLogic Case-Shiller Home Price Index, which shows average house prices in major U.S. cities, fell 0.2% in July from the previous month.
The top 10 cities fell 0.5% and the 20th cities fell 0.4%.
The top 20 cities are the first drop in 10 years.
Existing home sales fell for the seventh straight month through August, according to the National Association of Realtors (NAR), with median home prices falling for the second month in a row.
"The housing sector is most sensitive to and immediately affected by changes in interest rate policy by the Federal Reserve," said Lawrence Yun, chief economist at NAR.
In the aftermath of the Fed's rate hike, the 30-year fixed rate mortgage rate jumped to 6.02% in the second week of September, breaking the 6% mark for the first time since the 2008 global financial crisis and then jumping to 6.29% in the third week.
In Australia, house prices fell the most in 39 years.
Australia's home price index fell 1.6% in August compared to the previous month, surveyed by real estate information firm CoreLogic.
It was the biggest drop since 1983, and it is the fourth straight month of decline.
"Loan capacity has declined due to higher interest rates and increased household spending driven by inflation," said Tim Lawless, head of research at CoreLogic.
In the UK, a sharp rise in interest rates is expected to lead to a plunge in house prices.
According to the local daily Telegraph, Capital Economics, an economic analysis agency, and Swiss Credit, an investment bank, predicted that housing prices would fall by 10 to 15 percent when interest rates rise to the 6 percent range as expected by the financial market.
"If the UK benchmark rate rises from 2.25% today to 6.1% in June next year," said Andrew Wishart, an economist at Capital Economics.
As mortgage debt is larger than it was during the 2008 global financial crisis, rising interest rates will increase financial pressure on existing homeowners and the cost of repaying new loans will rise to the highest level since 1990.
Home prices in Korea are also on the decline.
According to the 'Regional Economic Report' of the Bank of Korea, the nationwide housing sales price showed a steep upward trend until December last year, then turned downward in June of this year, and the decline increased in July and August.
By region, the metropolitan area and some metropolitan areas and special cities showed a large drop.
The average monthly house sale price in the metropolitan area fell 0.27% from the end of June.
As of August, Sejong (-7.93%), Daegu (-3.37%), and Daejeon (-1.29%) were in the order of decline from the peak.
According to KB Kookmin Bank's housing price trend survey, nationwide house prices turned downward (-0.14%) from the previous month.
It is the first time in about three years that house prices have fallen, and as of the 5th of this month, the decline (-0.16%) has expanded.
The BOK said, "The risk of a housing price decline has recently increased as a further increase in the base rate is expected in the future."
The Korea Economic Research Institute analyzed that housing prices have risen 23% nationwide over the past five years, and that more than 35% of housing prices in the metropolitan area are bubbles.
The Korea Economic Research Institute explained that although housing prices seem to be going down due to the impact of quick sale items that have traded below market prices this year, it is difficult to judge that housing prices have turned downward in a situation where transaction volumes have sharply decreased due to rising interest rates.
However, the prospect of falling house prices among consumers is prevailing.
Among consumer trends surveyed by the BOK in September, the housing price outlook index (standard value of 100) was 67, down 9 points from the previous month, recording the lowest level ever recorded.
When housing prices fall while interest rates rise, the delinquency rate of borrowers increases due to a decrease in the value of mortgages and a decrease in rental income, which is expected to worsen the soundness of household loans and affect related industries such as a contraction in construction investment.
The BOK estimated that if real estate prices fell by 20% compared to the end of June, the ratio of net assets to debt of households with financial debt would drop from 3.5 times to 2.7 times.
It is the inability to meet liabilities with assets held.
Seong Tae-yoon, a professor of economics at Yonsei University, said, "The problem is that housing prices rise or fall quickly. can,” he pointed out.
Professor Sung added, "Because of the US interest rate hike and Korea's soaring inflation, a domestic interest rate hike is inevitable.