Housing Price Hits Seven-Year Record High

House prices against income hit a record high for the past seven years. House penetration rate has also increased, but the number of people living in their own home is decreasing, which shows a worsening preponderance of houses.

According to the report titled ‘The Analysis on the Expectation Effect from the Establishment of Korea Housing Financial Corp.’ which the Ministry of Finance and Economy entrusted to the Social Science Institute at Kunkook Univ., the Price Income Rate (PIR) is at 5.5, hitting its highest mark since 1995.

A PIR figure 5.5 means that one family can buy their own house only if they save earnings without spending any money for five and a half years. PIR has picked up since 2000 after plummeting to 9.0 in 1990 and marking steady contraction due to building 5 New Town in the metropolitan area.

This PIR figure was calculated based on the national average house price, so it is expected to be much higher in Seoul only.

The report pointed out that excessive hikes in house price would lead to a bubble, possibly putting the financial shape in the worst phase. The result of comparing housing sale price index with basic economic factor including gross national income showed housing costs have increased 15 percent over the reasonable level since 2002.

Rate of living in their own house has not improved despite building a lot of houses, proving that people who own more than two houses are increasing. House penetration rate jumped to 96.2 percent in 2002 from 69.8 percent in 1980, while residential rate in their own house has fallen to 54.2 percent from 58.6 percent.

“Mortgage loan increase for buying houses has surpassed financial asset increase”, said Prof. Ko Sung-soo(majoring in real estate studies), and warning, “In case that bubble in housing price collapse, it is highly probable for the whole financial sector to fall into bad shape, because of the plunging in value of real estate mortgage.”

Ki-Jeong Ko koh@donga.com