Real estate market debt deflation should be on the alert

 Domestic housing prices, which have soared due to quantitative easing policies to cope with the COVID-19 pandemic, have shown signs of falling since the second half of 2021, and the signs are becoming more clear this year. Apartment prices in certain areas are falling significantly, and there is a phenomenon that they are not sold even if they are put up for sale.

Looking back, the Korean real estate market has been on the rise for the past 20 years. Unlike the real estate market in major countries, which plunged after a considerable period of adjustment after the financial crisis, the Korean real estate market has risen for a very long time.

Above all, the prevailing view is that the COVID-19 pandemic broke out even before the adjustment was made after the price surge, and a considerable bubble was formed in the asset market through quantitative easing to respond to it.

Apartment prices in Korea, especially in the metropolitan area, have a very high rate of increase compared to actual assets and foreign housing prices. However, it is unlikely that real estate prices will fall significantly right away. Above all, short-term floating funds, which have driven housing prices, are difficult to easily fall out of the real estate market.

If market funds do not circulate in the future, short-term floating funds could become larger. This is because uncertainties continue throughout the domestic real economy and financial markets due to the economic recession and anxiety over the future. It is not easy for the real estate market, which has given high profits, to shrink rapidly in the reality that individuals manage their funds in the short term, seeking opportunities to invest in the asset market.

Meanwhile, household debt also increased rapidly in the process of soaring real estate prices for a long time. It is the largest OECD country except for a few Nordic countries, and the quality of household debt is also very weak, with a high proportion of short-term debt and a growing proportion of non-bank financial institutions. Without concrete repayment plans to pay back loans with predictable income, the investment practice of borrowing as much as possible or using jeonse deposits as leverage in vague expectations that rising housing prices will not be difficult is a potential risk to households and the national economy.

Domestic interest rates are expected to continue to rise in the future due to normalization of global monetary policy and inflation. In particular, if the U.S. Fed's key interest rate continues to rise, the weak domestic household debt problem may arise at a time when domestic interest rates are also forced to rise.

For the time being, expectations for the new government's real estate policy and macroeconomic indicators such as rising interest rates and reducing liquidity are mixed, and the real estate market is expected to remain in a deal-free slump. In other words, there is a high possibility that the stagflation phenomenon in the housing market will continue.

The stagflation phenomenon in the housing market could be prolonged if the international situation continues to be unstable while the economic recession caused by COVID-19 has not recovered.

So what will happen to the housing market when stagflation is over? Debt deflation, which resolves the bubble in the housing market, is predicted.

Interest rates were raised little by little until early 2022, but real interest rates considering prices were negative due to soaring prices due to the aftermath of COVID-19 and worsening international situation. Central banks in each country will raise their key interest rates further, but if inflation subsides to some extent, debt deflation could occur in the housing market in earnest if real interest rates considering prices are normalized away from negative territory.

Debt deflation is a vicious cycle in which an 느바중계 increase in the debt burden caused by a drop in prices causes a drop in prices again. Buying a house at a time when housing prices fall increases the real debt burden afterwards, resulting in household debt reduction such as debt repayment and sale of collateral assets, which acts as an additional factor for falling housing prices. Fortunately, the domestic banking sector is not likely to collapse due to the financial crisis.

However, if this phenomenon continues, the construction economy will stagnate, the financial situation of the second financial sector, which has made excessive loans, and the household debt problem will be a big burden on the national economy. Therefore, careful policies by policy authorities are required to minimize the side effects of the bubble collapse. The social and economic changes that Japan experienced 30 years ago may now face the evils as we go through them.

There is a lot of interest in what will happen to domestic housing prices after debt deflation. It is also expected that domestic housing prices will rise again or at least maintain the myth of invincibility in certain areas. The idea is that the soaring liquidity in the market will not easily fall out, but rather will induce a rise in housing prices.

It is mainly from the perspective of real estate-related industries, and housing demand in the metropolitan area is still lower than in advanced countries, especially in central Seoul, Gangnam, and Yeouido, along with increased demand for offices. It's not a completely improbable story, but the voice that it will happen right away is small.

Perhaps the arrow has already left the demonstration a long time ago and is rushing toward the target. At the moment, it is not certain whether to hit the target of "real estate invincibility," hit the target of a soft landing in the real estate market, or whether it will be an arrow in the NBA중계 target of a hard landing that continues to fall after a quick plunge. It is unlikely to lead to a long-term decline like Japan, but the process of the decline may not be easy.

If it makes a hard landing, the future will be unstable for us, who have a housing-oriented asset structure based on household debt. Above all, in order to induce a soft landing in the real estate market, it is time to reflect on the economics of real estate, debt, and bubbles and carefully fine policies are needed.