Price Run-Up in Housing Markets, Access to Bank Lending and House Prices in Korea

36 Pages Posted: 13 Nov 2009

See all articles by Sae Woon Park

Sae Woon Park

Changwon National University

Doo Woan Bahng

Changwon National University

Yun W. Park

Korea Securities Research Institute (KSRI)

Date Written: November 12, 2009

Abstract

This paper studies the causal relationship between house prices and the access to bank lending in Kangnam, the hottest submarket in Seoul and four 'cold' markets which have shown relatively modest price increases. In response to the rapid escalation of house prices in Seoul, primarily in Kangnam in recent years, the Korean government implemented a number of policies to stabilize house prices.In particular, it introduced more strict limits on loan-to-value ratio and debt-to-income ratio as part of the mortgage loan qualification process in order to restrict the availability of bank lending for the housing market. The short-run influence of the bank lending on the apartment prices is clearly present in 'cold' markets, while it is not in Kangnam, the 'hot' market, even though the long-run influence is stronger in Kangnam than in the other markets. This result holds for the entire sample period (1999-2006) as well as for the subperiods before and after the introduction of lending restrictions in August, 2005. It also holds for Kangnam and Kangbuk for an extended period of 1988 to 2006. Our results suggest that in the short run the lending restriction may cause a disruption in untargeted housing markets while it has little influence on the apartment prices in the targeted market. We also find that banks have adjusted the bank lending in response to changes in the house prices in Kangnam as well as in the other markets.

Keywords: house prices, bank lending price run-up in housing markets, Korean housing markets

Suggested Citation

Park, Sae Woon and Bahng, Doo Woan and Park, Yun W., Price Run-Up in Housing Markets, Access to Bank Lending and House Prices in Korea (November 12, 2009). Journal of Real Estate Finance and Economics, Vol. 40, No. 3, 2010, Available at SSRN: https://ssrn.com/abstract=1504840

Sae Woon Park

Changwon National University ( email )

Changwon
Korea, Republic of (South Korea)

Doo Woan Bahng

Changwon National University ( email )

Changwon
Korea, Republic of (South Korea)

Yun W. Park (Contact Author)

Korea Securities Research Institute (KSRI) ( email )

33 Yoido-dong
Yongdeungpo-ku
Seoul, 786-7570
Korea, Republic of (South Korea)

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