Home Buyers Bear Greater Burden in the Second Half of the Year

- Rising home prices and interest rate hikes have created a greater burden on home buyers for the fourth consecutive quarter

Rate hikes increase burden on home buyers

  It is found that the housing affordability problem has worsened compared to the same period last year.
Korea Housing Finance Corporation (HF, CEO Kim Jae-Chun) stated on the 27th that the Korea Housing Affordability Index (K-HAI)* for the second quarter rose to a national average of 60.1, a 4.8-point increase from 55.3 of the same period last year. 
* K-Housing Affordability Index (K-HAI): This measures the repayment burden on the median household which purchases a median-priced house with the median debt. On a scale that ranges up to 100 points, a higher index number indicates greater repayment burden on the household. When the index reaches 100 points, it means that 25% of income are used for principal and interest payments. In other words, the median-income family purchasing a median-priced existing home needs to pay 25% of its income to pay back the principal.  

The increase in the K-HAI was due to the median price of apartment units rising 4.17% year-on-year (from 240 million won to 250 million won) and, at the same time, the loan rates increasing by 0.45%-points (from 2.77% to3.22%) during the same period.   

K-HAI, which hit 59.4 in Q3 2012, improved steadily to record 50.3 in Q1 2015. This year, it reached 59.3 in the first quarter and stayed in the 50s. In the second quarter of the year, it went up to 60.1, reaching the 60s for the first time in five years.

Greater burden on home buyers in Seoul, Jeju, and Busan

  In the second quarter of the year, K-HAI recorded the highest point in Seoul (107.2), followed by Jeju (87.7) and Busan (73.0). In addition, compared to the previous quarter, the K-HAI rose more in Seoul, Jeju, Busan, Gangwon, Jeonbuk, and Jeonnam than across the nation on average (by 0.8 points), while it decreased in Incheon, Chungbuk, Chungnam, and Gyeongnam.

An HF official said, “The government's recent measures taken on August 2, 2017, to rein in the real estate market, its designation of more residential areas as overheated speculative zones, and interest rate changes are expected to affect the future K-HAI.”