Home prices could drop as much as 2.8 percent in two years once the Bank of Korea raises its policy rate by a full percentage point or 100 basis points, the central bank said in a report Wednesday.

The report, which focused on analyzing how a rate change affects home prices without studying factors like mortgage rules and new supply, comes as Seoul apartment prices kept falling for the last nine weeks. Last week Seoul saw its largest weekly drop since April 2020, according to the Korea Real Estate Board.

Higher borrowing costs, backed by the central bank in an effort to bring down persistent inflation, are one of reasons behind a market cooldown, especially in the capital Seoul, the country‘s most populous city.

“Our research shows a hike by 100 basis points leads home prices to decline 0.4-0.7 percent in a year and 0.9-2.8 percent in two years,” said Kim Dae-yong, a senior economist on the BOK’s inflation analysis team.

But Kim noted that the changes in home supply and in property market regulations like taxes are factors that make some areas more vulnerable or impervious to rate hikes.

The report found Sejong most susceptible to rising borrowing costs, because the city “either suffers from oversupply or has recently seen a price spike.” The report added that downward price pressures would be stronger as homebuyers face not only higher borrowing costs but tight loan curbs.

And the signs of a market slowdown are already palpable, according to recent court data showing a dwindling volume of applications homebuyers file for ownership.

Some 69,000 applications came in July, marking almost half the level seen a year earlier and the lowest level since September 2013. Analysts see the transaction volume will be sluggish for the time being, as Koreans refinance their budget in response to an increasingly hawkish central bank.

“Taking out loans and repaying debts is the first thing to do and these days, higher borrowing costs don’t really encourage people to make that move. They will wait and see,” said Seo Jin-hyeong, president of the Fair Housing Forum, a private group of experts floating suggestions to policymakers.

Bank of Korea Gov. Rhee Chang-yong said Monday that the usual 25 basis point rate hikes would take place later in the year, without elaborating whether the bank would back a raise each time in August, October and November.

“We cannot rule out a bigger hike,” Rhee said, referring to lifting borrowing costs by 50 basis points. It would be second time for the central bank to back the largest single rate hike, since July 13 when soaring prices prompted the unprecedented step.

The top banker and the finance minister see inflation peaking in the early fourth quarter, though the two chiefs acknowledge the projection could be wrong if uncertainties involving Russia’s invasion of Ukraine further rattle the global economy.