It can hardly have passed anyone’s attention, that the housing market has been doing remarkably well over the last two years, with a record number of sales and record-high prices as a result.

The Systemic Risk Council and The Governor of the Central Bank of Denmark have, among other things, recommended that the Danish Government ought to raise the down payment requirement, reduce the home mortgage interest deduction, and/or intervene/impose restrictions in relation to access to the non-amortization loans, which are especially popular among Danish homeowners.

The government has so far rejected the idea of an intervention.

The coronavirus pandemic tricked all the economists in terms of activity on the housing market. Most of them predicted a stagnation of the market, with a significant price drop as a result. This simply has not happened.

Danes have been buying property like never before, and have taken advantage of the low interest rate as well as potential home equity, which they need to have earned on their previous house in order to buy a new one.

The question is then whether Danes have been buying property based on an actual need or have done so speculatively?

Many have been hearing and reading about rising prices in the media and from real estate agents on an almost daily basis. This can sound extremely tempting to many people, who are then prompted to jump on the bandwagon themselves. What if you missed out on yet another price increase?

On the other hand, it has made sense to invest in real estate – the interest rate is at a historic low, rental prices in the big cities are record-high and bank customers are paying negative interest on their credit balance. Plus, real estate has always been a good long-term investment, the unemployment rate is low, and, compared to other European countries, the Danish economy is faring well despite the coronavirus pandemic.

The Central Bank of Denmark anticipates an advance in the Danish GDP of 3.3 percent this year. At the same time, the coronavirus pandemic did not come close to hitting state coffers as much as the government feared when the virus entered Denmark last year. At the end of 2020, the deficit for government finances (the EMU balance) stood at DKK 26.7 billion, according to figures from Statistics Denmark, compared to a forecast deficit of DKK 160 billion for state finances in May of last year.

Denmark was thus the only EU country to have a deficit under the three percent deficit limit set via the Maastricht Treaty, according to figures from Statistics Denmark.

Despite the large price rises, many economists do not see current developments as a price bubble. This must be seen in light of the development of housing prices in relation to the development in incomes, as well as the fact that the number of houses on offer has not been able to meet the massive demand during the coronavirus lockdown.

There are also no signs of the kind of surge in debt levels that would cause prices to skyrocket, as was seen during the recent financial crisis. The picture looks a little different, however, for apartments in central Copenhagen, where there is a higher debt level among house buyers, and is therefore a little more complex.

Current status of the housing market:

Price increases in the housing market are expected to level out and continue at a more normal level in line with an increase in the amount of real estate on offer. The housing market already appears to have found a more normal and healthy level. Properties are selling more slowly, the number of sales over the past few months has been falling, and a normalization of the behavioral effect of the coronavirus crisis has been noted.

Once again, property sales are being price-regulated. The fact that the market has returned to a more normal level should be seen as positive, insofar as the risk of a negative market correction has been reduced. Many economists have therefore predicted a ‘soft landing’ for the housing market on the condition that the market is not subjected to a sharp interest hike.

Note, the real estate agent is hired by seller and represents seller’s interests throughout the whole process, while the buyer’s agent exclusively represents the interests of the buyer.

Remember that Minkøbermægler.dk is always ready to guide you through the purchase process.

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