A 0.25 percentage point rate increase during a period of rising interest rates lowers apartment sale prices nationwide by 1.2% six months later, according to a new study. The report cautioned that because the effect of rate increases on home prices can emerge with a time lag, the impact of rate changes on housing prices needs to be monitored.
The Korea Research Institute for Human Settlements (KRIHS) analyzed how interest rate changes affected the housing market from May 1999 through August 2026 in a report released on the 23rd titled "Analysis of Housing Market Volatility During Periods of Rising Interest Rates and Policy Implications." Over that period, there were seven phases of rising rates spanning 144 months and seven phases of falling rates spanning 184 months.
During rising-rate phases, the shock response to a 0.25 percentage point increase was a 1.2% decline in nationwide apartment sale prices after six months, followed by estimated declines of 1.1% after 12 months and 0.9% after 24 months. Across the full period, the corresponding declines were 0.5% after six months, 0.9% after 12 months and 1.2% after 24 months.
"Because the effect of rate increases on home prices emerges with a certain time lag, the impact of changes in market rates and mortgage rates, not just the base rate, on home prices and transactions needs to be monitored continuously," the institute said.
The institute noted that central banks in major economies have shifted to raising policy rates this year amid a surge in oil prices tied to the war in the Middle East and mounting inflationary pressure. The U.S. Federal Open Market Committee (FOMC) raised its target range by 0.25 percentage point to 3.75-4.00% on the 16th of this month, assessing inflation as elevated. The Bank of Japan (BOJ) has also maintained a tightening stance since ending negative rates in March 2024, raising its policy rate by 0.25 percentage point in September after a similar move in June to bring it to 1.25%.
South Korea also ended a run of rate cuts that had continued since October 2024, raising the base rate by 0.25 percentage point in both July and August this year and entering its seventh period of rising rates since 1999. Higher rates generally weigh on housing demand and prices by raising financing costs and debt-servicing burdens for homebuyers. Recently, however, prices have kept climbing despite the increases, with actual transaction prices for Seoul apartments up 14.5% in July 2026 from a year earlier.
The institute also analyzed how buyers in Seoul funded their home purchases. The share coming from lease deposits fell from 27.1% in 2021-2022 to 16.1% in 2023-2025 and 6.6% in the January-April period of 2026, while the share from financial institution loans rose from 15.7% to 22.6% and 23.6% over the same periods.
The shares from proceeds of property sales, sales of stocks and bonds, and gifts or inheritances rose by 5.0 percentage points, 3.8 percentage points and 2.7 percentage points, respectively, in January-April 2026 compared with 2021-2022. Proceeds from stock and bond sales and from gifts or inheritances nearly doubled, rising from around 3% in 2023-2025 to around 6%. The findings suggest a need to examine the flow of funds into the housing market through a range of channels, including policy finance, loans to businesses and sole proprietors, jeonse deposits and gifts or borrowing among family members, as well as loans from financial institutions.
