Stocks and Now Housing Too Are Sliding … A Wave of Credit Defaulters in Their 30s May Be Coming
2022. 1. 28. 13:11
Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, said, “The turn in Seoul housing prices came sooner than expected. Even if the statistical indices do not show a dramatic fall, some individual apartment complexes could still end up dropping by KRW 300~400 million, as they did in 2007. If that happens, those who maxed themselves out may, like their fathers before them, become ‘house poor’—people who own a home yet remain financially distressed.”
It is also pointed out that, in many cases, those who made hyper leveraged housing bets using Korea’s gap-investment structure also borrowed to invest in Bitcoin or stocks, meaning they may now need some kind of exit route. The stock market is currently in correction, and Bitcoin has already been cut in half. As the debt-servicing capacity of younger borrowers weakens in a rising-rate environment, some argue that countermeasures are needed before this becomes a broader social problem.
Will the inflation fears that were long dismissed under fashionable labels like Modern Monetary Theory (MMT) and the Price-to-Dream Ratio (PDR) finally prove real?
I will keep tracking it.
House-Price Declines Spread Even to Gangnam … Some Places Down by Hundreds of Millions of KRW Amid a Sharp Decline in Transactions
2022. 2. 8. 10:40
Mortgage lending has tightened and interest rates have risen
while more and more people now think house prices have peaked.
A 128㎡ unit in Daechi Mido has fallen by KRW 300 million.
Outer districts, where many highly leveraged buyers had piled in, are also weakening.
Even KOSPI 2700 has broken down.
Retail investors are distraught.
“We’ve never experienced this kind of collapse before.
Looking at the trading screen every day is too stressful.”Daily KOSPI trading value has fallen to KRW 9 trillion,
down to one-fifth of what it was at the start of last year.
When stocks collapse, chaos follows; when real estate crashes, pandemonium.
At times like this, those with liquid cash in the low single-digit billions of KRW seem to step in as investors, while those with tens of billions on hand appear to be scooping up properties for intergenerational transfer.
Winning Subscription Scores in Suyu-dong, Northern Seoul, Fall into the Teens … While Gangnam House Prices Stop Declining
2022. 3. 17. 20:41
Industry participants say buyer sentiment has cooled even in Seoul’s presale market, owing to financing difficulties caused by tighter lending regulations and to falling home prices. Cantavil Suyu Palace had already failed to sell out in the first-priority subscription round, particularly for smaller units. It was the first case in Seoul since September 2020 in which a project failed to fill its first-priority allocation.
According to the Weekly Apartment Price Trends released by the Korea Real Estate Board on the 17th, Seoul home prices fell 0.02% in the second week of this month (as of the 14th), matching the previous week’s rate of decline (-0.02%). Prices in the Gangbuk area fell 0.02%, moderating from the previous week’s 0.04% decline, while the Gangnam area posted the same 0.01% decline as the week before.
Across Seoul as a whole, prices remained flat to down. Seocho-gu stayed flat at 0.00% for a third straight week, while Gangnam-gu and Songpa-gu also stopped falling and returned to flat after several consecutive weeks of decline.
Some higher-priced transactions have also been recorded. According to the Seoul Real Estate Information Plaza, a 15㎡ unit in Seokchon Lake Hyosung Harrington Tower in Seokchon-dong, Songpa-gu, changed hands on the 12th for KRW 290 million, up KRW 2 million from KRW 288 million in December of last year. A 107㎡ unit in Dogok G-Well County in Dogok-dong, Gangnam-gu, was also sold for KRW 1.9 billion, up KRW 300 million from the previous transaction.
The three Gangnam metropolitan districts have, for now, stopped declining. In Dogok-dong, one transaction printed KRW 300 million above the previous sale.
Panic Among the Maxed-Out Homebuyers as Interest Rates Rise
2022. 9. 19. 0:17
“I can hardly bear to face my wife”… Panic among the maxed-out homebuyers (2022.09.16.)
Another “rate shock” … what happens to the maxed-out homebuyers in an era of 7% mortgage rates?
COFIX hits its highest level in 9 years and 7 months.
The rate-hike cycle will continue into next year … interest burdens snowball.
I don’t know exactly why he says he can hardly bear to face his wife, but back in late 2020 and early 2021, I did try to stop acquaintances from stretching themselves to the limit to buy homes in areas that didn’t justify that kind of leverage in the first place—especially the outer-northern Seoul districts commonly grouped together as “No-Do-Gang,” or those so-called “new town” areas in Gyeonggi that kept getting hyped in GTX-related headlines. Last summer, I even told the editor of my stock-investing book, “You’d be better off waiting another year or two before buying a home."
My rationale, then and now, remains—summarizing the core tenets while omitting the granular details—as follows:
- If the purchase is for owner-occupancy, that is a different matter. Unless one is planning to flip homes the way traders flip stocks, there is value in securing a place to live regardless of the eventual capital gain or loss. And in a best-case scenario, house-price appreciation could still outpace the burden created by rising interest rates. Of course, that is far less likely unless one is talking about prime districts in a major metropolitan area.
\- The liquidity artificially unleashed in response to the global shock of COVID was never going to flow forever. Given how much money central governments around the world dumped into the system in such a short period of time, tapering was never all that far off. Once the panic-buying boom cools, the asset gap may widen, and the pool of buyers able to absorb supply will visibly shrink. Then how exactly are these maxed-out panic buyers—already boxed in by various restrictions on selling—supposed to carry the burden of rising interest payments? In stock-market terms, it is like going all-in on margin into a speculative theme stock after most of the market makers have already vanished.
‘21 Year-End Review & ‘22 Year-Ahead Outlook (2022.01.02.)
I also noted briefly in the outlook piece I write at the turn of every year that “it looked likely to crack at least once." At the time, I wrote that on the assumption that if Lee Jae-myung—widely believed to follow through on what he says—won, then perhaps things might somehow hold together until 2023 on election tailwinds. Instead, after a final stretch of farce and melodrama, Yoon Seok-yeol won—a prosecutor-type version of Ahn Cheol-soo—and things began to come apart from 2022 onward, without much surprise.
Of course, the single biggest cause of this whole mess was the Moon administration, which slapped regulatory labels on Seoul and then on region after region, choked off supply, and drove the entire country into a speculative frenzy.
Cries from No-Do-Gang Homebuyers
2022. 10. 18. 20:52
Red Flags for the Mixed-Use Development Project around Chang-dong and Nowon Station (2022.10.17)
A 45㎡ unit in Sanggye Jugong Complex 13 in Nowon-gu, which sold for KRW 597 million last autumn, changed hands on September 27 for KRW 380 million.
The drop in house prices is now the steepest in 13 years and 8 months.
Prices are falling by tens of millions of won with each passing week.
The situation is even worse in No-Do-Gang and the outer Seoul metropolitan area, where highly leveraged buyers had piled in.
“The house-price bubble inflated by GTX has burst.”
Concerns are growing that rate hikes will further deepen regional polarization.
According to the Ministry of Land, Infrastructure and Transport’s real transaction price disclosure system on the 17th, an 84㎡ unit in the Park Habio mixed-use complex in Songpa-gu, Seoul, was put under contract last month at KRW 1.36 billion, down roughly KRW 500 million in just one year. The previous recorded transaction was KRW 1.845 billion in March of last year.In Helio City, the largest apartment complex in Korea, a transaction was also recorded at roughly KRW 1 billion below the peak. An 84㎡ unit was disclosed as having sold for KRW 1.38 billion. Compared with the KRW 2.3 billion transaction in May and the KRW 2.2 billion transaction in August, some viewed it as an anomalous transaction. The market is beginning to look almost panic-stricken, with prices falling by tens of millions of won week after week.
The decline was especially pronounced in areas where so-called “yeongkkeul” buying—borrowing to the hilt—had been concentrated. In Seoul, that meant the so-called No-Do-Gang districts (Nowon, Dobong, and Gangbuk), while outside Seoul it meant Incheon and the outer edges of the greater metropolitan area. An 84㎡ unit in Sanggye Woobang You Shell in Sanggye-dong, Nowon-gu, traded on the 13th of last month for KRW 590 million, which was KRW 260 million below its peak price from August of last year.
The regional gap in house prices is expected to widen further. That is because the government has introduced a temporary capital-gains-tax reduction for owners of multiple homes through May 9 of next year, and such owners are more likely to dispose of homes in less desirable areas first. In addition, a large volume of scheduled apartment move-ins remains in the pipeline for Gyeonggi and Incheon, which is also expected to weigh on the market. According to real-estate information firm R114, the number of apartment units scheduled for move-in this year in Gyeonggi and Incheon totals 152,908, up 17% from last year.
Lee Eun-hyeong, a research fellow at the Korea Research Institute for Construction Policy, said, “When market transactions are already contracting because of tighter lending regulations and then external factors such as rate hikes are added on top, the result is even deeper regional polarization. Places where demand and preference are concentrated will hold their value or continue to rise, while the opposite will not.”
I’ve been warning about real estate since the beginning of the year… Sigh.