Analysis of Housing Market Dynamics Considering the Structural Characteristics of Mortgage Interest

Insoo Baek,Sanghyo Lee,Jaejun Kim,Joosung Lee

doi:10.3390/su131910523

Insoo Baek, Sanghyo Lee + Show 2 more

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https://doi.org/10.3390/su131910523

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Abstract

Mortgage loan interest rates consists of base interest and spread. In general, the base interest is adjusted by the government for the sustainability of the housing market. On the other hand, spread is determined by market mechanisms. Accordingly, the change pattern of base interest and spread may appear differently depending on the market situation. In the end, the effect of the government’s market intervention through interest rate policy may be different than expected. In this respect, the purpose of this paper is to analyze the effects of base interest and spread of the mortgage loan interest rate on the housing market and to derive important policy implications for the sustainability of the housing market. As a result of this study, the ineffectiveness of the government’s interest rate policies on the stability of the housing market was confirmed. The market mechanisms had more significant effects on the sustainability of the housing market than artificial political intervention. Further, housing supply policies based on the market mechanism could be more effective than housing demand policies based on interest-rate adjustments.

Highlights

This study indicated that imposing a residential property tax or raising interest rates effectively curbed speculative housing transactions and had prolonged effects on regulating housing prices over time
The dynamic relationship between the housing market and the base interest and spread was analyzed through the impulse response analysis (Figure 5 and Table 7)
The effects of the base interest and spread, which constitute the mortgage loan interest rate, on the housing market before and after significant macroeconomic changes were analyzed based on the vector error correction model (VECM) to elucidate the policy implications for the sustainability of the housing market

Summary

Introduction

Spanning 1988: Q1–1991: Q3, the first boom marked an annual average real housing price of approximately 14.2%. This bullish run was followed by a decade-long bear market that lasted until the economy endured the impact of the Asian currency crisis. Fluctuations in Housing Market with Respect to Interest Rate in the Republic of Korea. Changes in the housing market of the Republic of Korea were analyzed with respect to the structural characteristics of interest rates. The housing transaction price surged until the GFC, remained stagnant for a long period after the crisis, and decreased from 2011. Housing rent prices fluctuated periodically before the GFC; they exhibited an overall increasing trend around

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