As the trade war between the United States and China escalates, the volatility of the won-dollar exchange rate is increasing, raising concerns in the real estate market. With the exchange rate settling in the 'high exchange rate' range of 1,400 won, it is anticipated that construction costs may rise due to increased prices of imported materials. Furthermore, although the demand for 'homeownership' is likely to remain buoyed by a downward trend in loan interest rates, there is a prevailing sentiment that one cannot be too complacent.
According to the Seoul foreign exchange market on the 14th, the won-dollar exchange rate closed at 1,449.9 won, down 6.5 won from last Friday, the 11th. The day before, on the 10th, it closed at 1,456.4 won, an increase of 27.7 won compared to the previous trading day. On the 9th, the won-dollar exchange rate ended at 1,484.1 won, the highest level since March 12, 2009 (1,496.5 won), when the global financial crisis first hit.
The reason for the won-dollar exchange rate's fluctuations is due to the 'trade war' between the U.S. and China. After exchanging retaliatory tariff measures, the U.S. announced on the 9th (local time) that it would raise the tariff rate on China to 125%. However, it stated that it would suspend reciprocal tariffs on other countries for 90 days and only impose a basic tariff of 10%. In response, China raised its tariffs on the U.S. to 125% and began depreciating the yuan.
The foreign exchange market predicts that the won-dollar exchange rate will maintain high levels around 1,400 won and show volatility for the time being. However, there are not many expectations that 'the exchange rate will exceed 1,500 won.' The rate on the 9th is viewed as the peak.
Park Sang-hyun, a researcher at iM Securities, noted, 'For now, I lean more towards a decline in the won-dollar exchange rate rather than an increase, though volatility will persist.' He added, 'However, since the conflict between the U.S. and China is not resolved, if China continues its yuan weakness policy, the won may also be affected, so one should watch closely.'
In the construction industry, there are concerns that as the won-dollar exchange rate rises to around 1,400 won, construction costs may increase. This is because a significant portion of the materials used on construction sites are imported. According to the Korean Construction Industry Research Institute, the construction industry's dependence on imports is 3.4%, lower than the overall average of 10.7%. However, if costs in other industries rise, the secondary impact is significant. It is particularly analyzed that rebar and wire rods will be affected the most. The annual import dependency for rebar and wire rods is 15%, amounting to about 900 billion won. Following that, the import value of stone products was 550 billion won (31.2% dependence), and plywood was 530 billion won (39.6%).
Park Cheol-han, a researcher at the Construction Industry Research Institute, stated, 'The high won-dollar exchange rate we have observed since last year indicates that there is currently considerable uncertainty.' He added, 'The exchange rate influences all industries, and once costs flow in due to one or two occurrences, they ultimately affect the construction industry as well.'
The real estate industry is closely monitoring loan interest rates. Just a week after the exchange rate peaked on the 9th, the outlook that the Monetary Policy Committee of the Bank of Korea will not lower rates on the 17th gained strength. Although interest rates must be lowered to respond to the economy, this could further strengthen the won's weakness. However, as the exchange rate stabilizes again, the market sentiment is changing. Lee Chang-yong, the governor of the Bank of Korea, mentioned in a press conference immediately following the Monetary Policy Committee on February 25 that 'It seems the market believes that it will lower rates two or three times, including the drop in February, but that possibility is not vastly different from the assumption of the Bank of Korea.'
Baek Seok-hyun, a researcher at Shinhan Bank, said, 'China is currently retaliating strongly for the sake of justification, but ultimately it will have to pursue practical benefits, leading to negotiations.' He added, 'Under these circumstances, the Monetary Policy Committee of the Bank of Korea may lower rates an additional one or two times, including this month.'
The housing mortgage loan rates from commercial banks, which impact the housing market, are currently on a downward trend. As of the 9th, the lowest rates for the 5-year fixed-rate mortgage loans from the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) range from 3.345% to 3.78%. These rates have dropped to the low 3% range, exceeding the lowest rates of early this year (around 3.7%). This decline follows a drop in the 5-year financial bond (AAA) rate, which serves as a benchmark for these mortgage loans. According to the Korea Financial Investment Association Bond Information Center, the 5-year financial bond (AAA) rate fluctuated around 3% at the beginning of the year before hitting a record low of 2.797% on the 7th, the lowest since March 21, 2022 (2.785%). The interest rates on U.S. 10-year Treasury bonds fell to around 3.8% on the 7th due to a preference for safe assets. However, on the 9th, as the U.S.-China tariff conflict intensified, the yield on 10-year U.S. Treasuries surged to around 4.5%. This indicates a sharp decline in U.S. Treasury prices. The expectation is that if excessive tariffs lead to an economic downturn in the U.S., the government may increase the issuance of deficit bonds. There may not be enough demand to purchase these bonds.
Cho Yeong-gwang, a researcher at Daewoo E&C, stated, 'The bank's lending rates are greatly influenced by U.S. Treasury bond rates.' He noted, 'While the recent decline in U.S. Treasury bond rates positively impacts loan rates, uncertainty remains.'