On the 18th (local time), the U.S. Federal Reserve (Fed) lowered the benchmark interest rate as expected, but hinted at a slowdown in the rate cuts next year, causing turbulence in the domestic financial market. In the real estate market, there are concerns as the won to dollar exchange rate has surpassed 1450 won, marking the third highest in history. This is because rising prices of imported materials may lead to higher construction costs.
According to the Seoul foreign exchange market on the 22nd, the won to dollar exchange rate closed at 1451.4 won on the 20th, down 0.5 won from the previous trading day. On the 19th, immediately after the announcement of the Federal Open Market Committee (FOMC) meeting results, the won to dollar exchange rate finished trading at 1451.8 won, up 16.3 won from the previous day. The exchange rate exceeding 1450 won is the third highest since the 1997 financial crisis (1962.5 won) and the 2009 global financial crisis (1570.7 won).
Foreign exchange market experts predict that the exchange rate could rise to the 1500 won mark. Analysts noted that amid rising exchange rates due to political uncertainty from martial law, additional negative factors are compounded. The Federal Reserve's indication that it will slow the pace of interest rate cuts is leading to a stronger dollar. Factors such as economic stimulus measures and tariffs since the inauguration of the Donald Trump administration are also contributing to the dollar's strength.
Park Sang-hyun, a researcher at iM Securities, said, "Given the extremely unfavorable domestic and international environments for the won, there is a possibility that the won to dollar exchange rate may rise to 1500 won." He added, "Concerns about what policies the Trump administration will pursue in January, along with changes in the Federal Reserve's interest rate policy and the weakness of the yuan and yen, could also be factors leading to the weak won." He continued, "There is a possibility that Korea's exports may experience negative growth in the first half of next year, suggesting that all factors could push the exchange rate higher."
The real estate market is paying attention to the potential for rising construction costs due to the upward trend in the exchange rate. The prices of construction materials with a high proportion of imports, such as rebar, sand, and flexible coal, may increase further. According to the Korea Institute of Construction Technology (KICT), the construction cost index recorded an all-time high of 130.45 in September. This index, which was based at 100 in 2020, has risen by more than 30% as of September this year. The KICT calculates the construction cost index based on the producer price index for the construction sector published by the Bank of Korea.
The rise in construction costs may lead to higher sale prices, potentially causing an increase in housing prices, particularly for new constructions. With a significant drop in move-in volumes anticipated until 2027, a long-term rise in housing prices is expected, making the situation even more difficult. According to Real Estate R114, the planned move-in volume for apartments nationwide next year is projected to be 264,425 units, down 27.3% (99,426 units) from this year (363,851 units). This is the lowest volume since 2013. In 2026, the number is expected to decrease to 158,000 units, and in 2027, to 179,000 units. The sluggish construction over the past 2 to 3 years is manifesting as a lack of move-in volumes in the future. However, older apartments in the outskirts of the metropolitan area and less favored regions may see reduced transactions and price adjustments due to lack of demand.
Ham Young-jin, head of the real estate research lab at Woori Bank, said, "If import prices rise due to the increase in the exchange rate, it will lead to higher apartment sale prices, ultimately exacerbating the 'one good property' and 'preference for newly built properties' phenomena." He added, "The burden of sale prices in areas with significant subscription demand, such as Seoul and the metropolitan area, is expected to continue for the time being."