South Korea’s financial system looks solid right now, thanks to strong banks and a healthy ability to handle international payments. But the Bank of Korea (BOK) warns that ongoing hopes for higher home prices in Seoul could stir up bigger financial risks.
In its latest financial stability report, the central bank highlighted how these rising expectations in the Seoul housing market are raising red flags. Even with government efforts to cool things down—like stricter loan rules and plans to build more homes—home sales have dropped sharply.
Still, the BOK points out that a key index tracking housing price expectations climbed since August. And in parts of Seoul, prices have started picking up speed again since early September.
When it comes to household loans, things slowed in July, with banks adding just 2.3 trillion won— a big dip from June’s 6.5 trillion won jump. But August saw a rebound, with loans growing by 4.7 trillion won. The BOK says that’s partly because deals from May and June are showing up with a delay.
“The slowdown in Seoul and the wider metro area’s housing prices isn’t happening fast enough,” the report notes. To keep the housing market in check, the central bank calls for sticking with tough oversight policies to tame those price hopes.
Last month, the BOK kept its benchmark interest rate unchanged for the second straight time. Officials are juggling worries about financial stability with the push to spark economic growth.
BOK Governor Rhee Chang-yong explained that putting off a rate cut by a month or two won’t hurt the economy much. But he added that a sudden spike in home prices “would make everything even tougher.”
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