There is a consensus that current housing market instability, which started from 2002, is mainly arisen from the low interest rates and lots of floating money. This study starts check the role of housing finance to stabilize housing market.
The stability of housing market is important fundamental to attain the goal of economic growth and residential stability. That’s why we investigate the ways fostering the role of housing finance, focusing on how it is helpful for the economic growth, the well-functioning and soundness of housing loan markets. The relationship between housing market and housing finance is analyzed on the macro and micro level to get some policy suggestions.
Chapter 2 provides analysis on the relationship between housing market and housing finance. Housing price shows steep upward trend from the second half of 2001. The interest rate of individual loan originated by commercial banks declined to 5.5% in 2005 from 10% in 2000. The balance of loans to households in 2005 becomes more than double that in 2000. The expansion of housing loan plays positive roles: it contributes to the residential stability by providing credits to houseless people and keeps household consumption in a stable level. The excessive expansion of housing loan, however, shrinks household consumption by inducing inflation. And it is related increasing housing price which causes residence instability. Therefore the policy of expanding domestic demand by giving spurs to housing market is effective as long as it does not induce steep increase in housing prices. That’s why we need continuous monitoring on the relationship between the economy and housing loan market and timely policy reactions to the market movement.
In chapter 3, we analyze demand for housing finance using the data of “2005 Housing Survey” performed by KRIHS and MOCT and the data of “Survey on housing finance demand” executed by Kookmin Bank in 2004. From the analysis, we find that housing finance consumers have a preference on the following loan conditions: long term loans, fixed payment, fixed interest rate. We also made a policy simulation using a logit model in order to see whether increasing LTV contributes to the residential stability of low and middle income class. We find the fact that increases in LTV is helpful to the residential stability of middle income class, but not to low income class. It turns out to be that the policy of providing houses with cheap rent to low income class is more helpful to this class.
In chapter 4, we examine the behavior of housing finance originators and try to find some lessons from the experience of foreign countries which already suffered bank failure. The problem in supply side of housing finance can be summarized as follows: the portion of short term loans is too high, adequate checking on the use of the loan and borrowers’ credit information is not made during the loan process.
In chapter 5, we propose some policy suggestions for the role of housing finance to stabilize housing market in the three aspects: support to consistent economic growth, well-functioning housing loan to real demander, soundness of housing loan. First, the policy of raising interest rate should be adopted with caution. It could induce insolvency of households and financial institution and retard economic growth by increasing households’ burden of principal and interest and decreasing house prices. Second, increasing loan amount to households could result in the stability of real estate market with having less side effects than the policy of increasing interest rates. Third, an enhancement of monitoring system on housing market and housing finance, an increase of real demander’s repaying ability, policies to reduce risk related to housing finance are also needed. (The rest is omitted)
- 주택시장 안정을 위한 주택금융 역할강화 방안(A role of housing finance for stabilizing housing market)
주택시장 안정을 위한 주택금융 역할강화 방안(A role of housing finance for stabilizing housing market)
|Series Title; No||국토연 / 2005-47|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy
Territorial Development < General