This study examines the fundamental factors that drive Korean housing prices using Campbell and Shiller(1988)’s ‘Dynamic Present Value Model’. The model allows the rent-price ratio to be expressed as a linear relationship of the three components, such as the expected future real interest rates, housing premium, and rent growth rate. Using the relationship, we can conduct ‘4-component variance decomposition’ exercise as well as the general ‘3-component variance decomposition’ exercise. We show that changes in expectations for the housing premium or the rent growth are the main factors driving house prices depending on market conditions. Second, the correlations among the components play a role in not only dampening house price fluctuations but also amplifying house price fluctuations. Finally, explaining the housing price movements by only interest rates, ignoring these covariance, could be misleading.