BOK warns of “too fast” rising in housing costs and household debt in Korea

[Graphics by Song Ji-yoon]

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[Graphics by Song Ji-yoon]

Housing costs and household debt in Korea have increased “too fast,” compared with major economies across the world, the Bank of Korea warned in its report submitted to the Strategy and Finance Committee of the National Assembly on Friday.

Runaway housing prices have increased the discrepancy in the basic purchasing power such as income, and the pace of the price hike also is faster than that in other major countries, the report noted.

As a proof, the price income ratio of Korea came to 1.13 times of a year earlier in the fourth quarter of last year, higher than the 1.07 times of the U.S., Germany and the U.K. The nominal house price index divided by the nominal disposable income per head is considered as a measure of affordability.

South Korea’s household debt also grew fast amid the pandemic. The country’s household debt to gross domestic product (GDP) ratio rose to 105.6 percent as of the second quarter of this year.

“Widening financial imbalance increases the vulnerability in the financial system and expands the downside risk to the real economy,” said the central bank. A heavy concentration on specific assets like real estate could increase market volatility and have an impact on growth potential.

The BOK added household liabilities also could reduce the domestic consumption due to the burden of debt repayment.

As for the monetary policy, the bank suggested the possibility of an additional rate hike, citing its plan to normalize the policy in sync with changing financial and economic conditions. When to deliver the additional rate move will be decided after close study on the Covid-19 developments, inflation, financial imbalance and other major economies’ rate action, it said.

On the other hand, the current supply chain disruptions that are threatening the global economy with signs of recovery from a protracted pandemic slowdown could last longer than expected amid a bottleneck in the marine shipping and China’s power shortages.

By Pulse

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