South Korea’s central bank warned that housing prices remain overvalued relative to basic economic conditions and household debt levels are excessive.
(Bloomberg) — South Korea’s central bank warned that housing prices remain overvalued relative to basic economic conditions and household debt levels are excessive.
“Housing prices remain at a high level, out of sync with income, and the housing price-to-income ratio is very high even compared with major countries,” the Bank of Korea said in its monetary credit policy report on Thursday.
South Korea’s house price-to-income ratio, or PIR, is 26, according to cost-of-living data website Numbeo. The widely used measure of housing affordability means a citizen needs to save 26 years of annual income to buy a house. This is more than double the median ratio of other countries, the BOK said.
“It’s natural to say South Korean house prices are overvalued as you are unable to afford a home without help from your parents if you’re getting married,” Hong Kyung-sik, head of the central bank’s monetary policy department, said in a press briefing.
Housing prices rose in July after sliding for more than a year, and banks’ household loans have also expanded. Unlike major countries, household debt in South Korea has continued to increase without deleveraging, reaching a level that undermines macroeconomic and financial stability, the central bank said.
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