Real Estate Invincibility: An Illusion Created by Rumors

Notably, the quarter-on-quarter increase rate for Seoul apartments in Q1 2026 recorded its highest level ever.

Immediately after publishing his book "Irrational Exuberance" in March 2000, the Nasdaq index plummeted by 78%. After warning of a real estate bubble in the 2005 revised edition, U.S. real estate prices sharply declined in 2006, falling 39% in real terms. He explains the market's excessive volatility as the contagion of narratives.

Even in a 1980s U.S. survey, 98% of respondents expected home prices to rise in the next few years, and 80% believed they would miss an opportunity if they didn't buy now. They showed irrational expectations that home prices would rise by 14% annually over the next 10 years.

During the same period, the S&P 500 index saw a real increase of 32 times, and when dividends were reinvested and compounded, the real return reached 7,500 times. This suggests that the stock market recorded significantly higher returns than real estate in the long run. This data indicates that the real estate 'invincibility' myth is far from reality.

New terms like 'one smart house' and 'sudden poor' emerge, manipulating market participants' psychology, and the current market fear leads to decreased transactions and price maintenance. Similar to the FIRE movement craze in 2021, these social narratives act as a key mechanism for amplifying bubbles.

The KOSPI has gone through 8 cycles in 40 years, but real estate has only shown 3 cycles. This is because forced sales due to margin calls are rare, unlike stocks, and sellers maintain asking prices higher than actual transaction prices due to loss aversion. Because of these characteristics, real estate tends to exhibit strong price defense even during price downturns.

The Price-to-Income Ratio (PIR) indicates the time it takes for an average person to save income to buy a median-priced apartment. Seoul's PIR has decreased from 19 times in 2021 to around 10 times currently. However, for those who bought a house with a loan, it still remains high at 14.8 times. Although the Seoul real estate market is not 'extremely hot' based on indicators, the absolute figures themselves are still high.

The current real estate market shows a severe polarization phenomenon more prominently than overall price indicators. It was found that it takes a bottom 20% income earner a staggering 112 years to buy a top 20% house. This indicates that regions that are rising continue to rise, while others are becoming marginalized. When assessing the temperature of the real estate market, it is important to focus on regional disparities rather than simply average prices.

Jeonse (lump-sum deposit) prices are an important indicator reflecting actual demand. In 2009, jeonse prices declined in the Jamsil area due to a surge in new housing supply. Therefore, when analyzing data, it is crucial to make a comprehensive judgment based on multiple indicators rather than relying solely on one specific indicator.

Similar to Robert Shiller's annual surveys on house prices, the Bank of Korea conducts a Consumer Sentiment Survey (CSI) monthly with approximately 2,200 households. The buying sentiment index, which was 96 in March of this year, reached 127 in July, the highest in 4 years and 10 months. It slightly declined to 125 in August, but expectations for rising house prices still prevail.

True market overheating occurs when transaction volumes increase along with prices. The current phenomenon of rising asking prices with declining transaction volumes is unreliable. The market can only be considered truly hot when a high proportion of total transactions are at new highs. Rising asking prices amidst declining transaction volumes can be a market illusion.

There is a strong belief that government stimulus measures will be implemented regardless of the economic cycle, leading to the perception that real estate has a 'put option.' However, there are instances in the Japanese market where this narrative has collapsed.

The real estate market provides an 'ecosystem' where such stories can thrive best. If people around you talk a lot about house prices, and those stories sound appealing to you, it's a dangerous sign that a bubble is likely forming.