By Yi Whan-woo

Korea's housing market is feared to be heading for a hard landing as multiple indicators show a steep downturn approaching. Home prices have continued on a downward spiral, while transactions keep falling and the number of unsold new apartments is rising.

What is more concerning is that home prices in the nation have dropped more sharply than most other countries in the Asia-Pacific region in the midst of high interest rates, price misalignment and other downside risks in the region.

In its latest report titled, "Housing Market Stability and Affordability in Asia-Pacific," the International Monetary Fund (IMF) has shown that housing prices in Korea fell about 18 percent between the fourth quarter of 2019 and the fourth quarter of 2021.

The report also showed that Korea was only behind New Zealand and Australia, which saw a decline of about 35 percent and 23 percent, respectively, during the cited period. The decline rate turned out to be nearly 10 percent for the entire world and nearly 15 percent for advanced economies.

"Tighter financial conditions are raising borrowing costs significantly, and, as a result, housing demand has started to cool off, with market corrections already underway in some economies," the IMF said.

The IMF pointed out that the monthly housing price index in Korea shows a significant deceleration during the first half of 2022, when the Bank of Korea (BOK) picked up its pace by shifting away from its low-interest policy embraced during the pandemic era.

The base rate was hiked six straight times this year and currently stands at a more than 10-year high of 3.25 percent.

Under the circumstances, the IMF assessed that Korea's housing market is likely to face growing downward pressure down the road.

It added, "four-quarter-ahead house price growth is predicted to be about 20 percentage points lower in New Zealand than it was at the start of the pandemic and about 10 percentage points lower in Australia and Korea."

"The deterioration in housing price-at-risk mainly reflects greater misalignment, with momentum effects from strong lagged prices mitigating the effects of misalignment to some extent," it added.

Regarding the availability of homes by different groups in the Asia-Pacific region, the IMF picked Korea as an example to explain that "generations and low and middle-income households are increasingly priced out of housing markets."

"Korea has experienced a sharp fall in homeownership among people aged 40 or younger. A difference in the rate of homeownership across generations becomes increasingly apparent (Japan, Korea, New Zealand), directly contributing to a generational wealth gap," it noted.

The IMF's assessment of Korea is in line with findings by domestic housing market institutions, which forecast home prices in 2022, in the most extreme case, will fall at the fastest rate seen since the 1997-1998 Asian financial crisis.

On Sunday, KB Kookmin Bank said the prices of apartments, the most common form of housing in Korea, already fell 1.63 percent in the January-November period.

"The 1.63 percent fall is the fastest since 1998 when apartment prices plunged 13.56 percent," it said.

Also on Sunday, the Real Estate Board said that apartment prices dropped 4.79 percent in the first 11 months of this year and that the annual decline rate may reach 7 percent.

The number of home transactions is also falling. According to data compiled by the Seoul Metropolitan Government, a total of 11,161 apartments were sold and purchased so far this year.

The number is down from 41,987 for all of 2021, as well as the lowest since 2006 when relevant data was compiled.

The latest data from the Ministry of Land, Infrastructure and Transport showed that the number of newly-built homes that are unsold amounted to 47,217 across the nation in October, up 13.5 percent from a month earlier.

"The fall in home prices is likely to go on next year, considering that inflation persists and that the central bank will embrace a credit tightening policy," said Kim Sung-hwan, an associate research fellow at the Construction & Economy Research Institute of Korea.