A 0.25 Percentage Point Rise in the Base Rate Would Knock 1.2% Off Home Prices
A 0.25 percentage point rise in the base rate is estimated to lower nationwide apartment sale prices by as much as 1.2%, as higher rates increase loan interest burdens and make home purchases more difficult. The Korea Research Institute for Human Settlements released a report containing these findings, titled "Land Issue Report: Analysis and Implications of Housing Market Volatility During Rate Hike Cycles," on the 27th.
According to the report, the cumulative response of nationwide apartment sale prices to a 0.25 percentage point rate hike shock during rate-hike cycles was -1.2% after six months, -1.1% after 12 months, and -0.9% after 24 months, with the price-decline effect peaking at the six-month mark. In an analysis covering the entire period, the declines instead widened over time, at -0.5% after six months, -0.9% after 12 months, and -1.2% after 24 months. The report explained that while the price declines during rate-hike cycles were statistically significant at the six- and 12-month marks, they were not significant at 24 months, so caution is needed in interpreting medium- to long-term effects.
In the report, the institute also analyzed changes in the structure of home purchase financing alongside housing price responses during rate-hike cycles. In Seoul, the shares of funds from real estate sales, stock and bond sales, and gifts and inheritances in home purchases rose by 5.0, 3.8, and 2.7 percentage points, respectively, in January-April 2026 compared with 2021-2022. The share of rental deposits (jeonse) fell from 27.1% in 2021-2022 to 16.1% in 2023-2025 and 6.6% in January-April 2026. Over the same period, the share of financial institution loans rose from 15.7% to 22.6% and then 23.6%.
The report pointed to the need for continuous monitoring of how changes in market rates and mortgage rates affect housing prices and transactions. It also stressed the need to examine a range of funding channels, including not only financial institution loans but also policy finance, corporate and sole-proprietor loans, jeonse deposits, gifts, and inter-family borrowing.
