Analysis on the Dynamic Correlation between Housing Prices and Household Loan
Authors:   Asia-Europe Perspective Association, Jeon Sumin , Lee Kiseong 
Published: June 2018

In the 2000s housing prices and household loan of Korea have increased at rapid rate by basis of low interest rate and preference of household loan and deregulation of financial institutions. In particular, in 2003 they were on a downtrend, but from 2005 to 2008, a sudden rise in housing prices results in bubble phenomenon with capital areas such as Seoul, Incheon, and Gyeonggi as the center. Since the global financial crisis in 2008 this housing prices in capital areas has shown a little gentle downturn. On the other hand, that in the other regions has an upward trend, which leads to increase of household loan.
The study shows whether the correlation between housing prices and household loan exists, and the long-term equilibrium relationship exists by using previous studies. Also, it shows influence on macroeconomic variables affecting two variables. Analysis period were used a monthly time series data from October 2003 to January 2013, and analysis range is Nationwide, Gangnam, and Gangbuk regions. Analysis methods are unit root test, cointegration test, Granger causality, and VECM, impulse response function.
The main empirical results are as follows.
First, the study shows that long-term positive correlation between apartment prices in Nationwide, Gangnam, and Gangbuk regions and residential mortgage loan. When it move into long-term equilibrium, tendency to return again has different results either apartment prices or residential mortgage loan. The study shows that Nationwide is adjusted by the decline of apartment prices, whereas Gangnam and Gangbuk are adjusted by the increase of residential mortgage loan.
Second, short-term analysis result shows fluctuation of Nationwide, Gangnam, and Gangbuk areas do not affect that of apartment prices. Whereas fluctuation of apartment prices has a strong influence on that of residential mortgage loan. As a result of LTV, DTI, policy variables of loan regulation, Nationwide areas shows respectively that DTI conducted in February 2007 shows negative response, and LTV conducted in July 2009 shows positive response. Gangnam and Gangbuk areas in DTI implementation resulted loan decrease by enforcement of loan regulation in two these periods, but in LTV implementation, Gangnam has phenomenon, which is that the more loan regulation is intensified, the more price rises, and Gangbuk has exceptional anomalies, which is that the more loan regulation is intensified, the more loan increases.
Third, as a result of Granger causality test between apartment prices and residential mortgage loan, Nationwide, Gangnam areas have a significant Granger causality to residential mortgage loan. Whereas, loan does not have Granger causality to prices.
The results of this study, long-term positive relationship between apartment prices and residential mortgage loan is that enhancement of apartment prices induces increase of residential mortgage loan by rise in value of collateral, and increased loans raise possibility of housing expenditure and additional borrowing through market liquidity, which leads to synergy effects (liquidity effect). Also, the implementation of DTI and LTV, loan regulation means has different results by time, regional groups. To decrease instability of housing and financial market, methods of loan of financial institutions need to be reformed.
Therefore, if in a present market situation where house trading volumes is contracted, tax policy of government and loan regulation policy of financial institutions are mixed and implemented, it suggests possible to have effectiveness of policy.