Danish property bubble
Encyclopedia
During the Danish property bubble of 2001 through 2006, Danish
property prices rose faster than at any point in history, in some years increasing by more than 25%. Apartments and homes near the big cities rose especially fast.
Some of the rise can be attributed to falling interest
rates, the introduction of new loan
types (such as interest-only mortgage
s), improving economy and increasing urbanisation, higher wages along with other factors. Some observers have also noted increased interest in homes and a dramatic increase in the number of TV programs regarding home decoration, home sales, gardening
etc. The increasing number of parents buying apartments for their children is also an important factor, dramatically increasing the demand on smaller apartments, typically 2 - 3 rooms, thus giving rising prices from the lower segment of apartments.
However, many banks and analysts acknowledge that prices have increased more than can be explained by their models even when taking the economic factors into account and that homes have indeed become less affordable. In particular, it is becoming increasingly difficult for first-time buyers to enter the market, and they now make up a historically low fraction of all buyers.
This has led some observers to speculate that the Danish real estate
market may be in a bubble where price increases have been fueled by speculation beyond what can be justified by fundamental economics. Some have warned that the market may be in for a correction, i.e., major price decreases. Still, as of March 2007, this has not occurred. Apartments in Copenhagen
have fallen 7% in the first quarter of 2007 and the supply is still rising.
However, there are signs that the market is softening and prices have fallen in some areas. In 2006, the number of homes for sale increased dramatically, tripling in some areas. It was estimated that 10% of all apartments in Copenhagen are for sale. The total inventory of homes for sale totaled more than one average year of home sales. In the statistics for the fourth quarter 2006, some areas experienced a quarter-to-quarter price fall around 4-5%, the first significant fall in over a decade.
Two of the major real estate agencies claim they are observing price falls, with the biggest agency (Home) claiming to have observed falls since July 2006 The softening comes at a time when there has been an explosion in the building of new apartments and homes all around in the country. In Copenhagen alone, as many as 2,000 new apartments are expected to be added to the inventory during 2007.
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
property prices rose faster than at any point in history, in some years increasing by more than 25%. Apartments and homes near the big cities rose especially fast.
Some of the rise can be attributed to falling interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
rates, the introduction of new loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
types (such as interest-only mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
s), improving economy and increasing urbanisation, higher wages along with other factors. Some observers have also noted increased interest in homes and a dramatic increase in the number of TV programs regarding home decoration, home sales, gardening
Gardening
Gardening is the practice of growing and cultivating plants. Ornamental plants are normally grown for their flowers, foliage, or overall appearance; useful plants are grown for consumption , for their dyes, or for medicinal or cosmetic use...
etc. The increasing number of parents buying apartments for their children is also an important factor, dramatically increasing the demand on smaller apartments, typically 2 - 3 rooms, thus giving rising prices from the lower segment of apartments.
However, many banks and analysts acknowledge that prices have increased more than can be explained by their models even when taking the economic factors into account and that homes have indeed become less affordable. In particular, it is becoming increasingly difficult for first-time buyers to enter the market, and they now make up a historically low fraction of all buyers.
This has led some observers to speculate that the Danish real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
market may be in a bubble where price increases have been fueled by speculation beyond what can be justified by fundamental economics. Some have warned that the market may be in for a correction, i.e., major price decreases. Still, as of March 2007, this has not occurred. Apartments in Copenhagen
Copenhagen
Copenhagen is the capital and largest city of Denmark, with an urban population of 1,199,224 and a metropolitan population of 1,930,260 . With the completion of the transnational Øresund Bridge in 2000, Copenhagen has become the centre of the increasingly integrating Øresund Region...
have fallen 7% in the first quarter of 2007 and the supply is still rising.
However, there are signs that the market is softening and prices have fallen in some areas. In 2006, the number of homes for sale increased dramatically, tripling in some areas. It was estimated that 10% of all apartments in Copenhagen are for sale. The total inventory of homes for sale totaled more than one average year of home sales. In the statistics for the fourth quarter 2006, some areas experienced a quarter-to-quarter price fall around 4-5%, the first significant fall in over a decade.
Two of the major real estate agencies claim they are observing price falls, with the biggest agency (Home) claiming to have observed falls since July 2006 The softening comes at a time when there has been an explosion in the building of new apartments and homes all around in the country. In Copenhagen alone, as many as 2,000 new apartments are expected to be added to the inventory during 2007.
- DenmarkDenmarkDenmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
2007 - -12%
See also
- Real estate bubbleReal estate bubbleA real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets...
- Australian property bubbleAustralian property bubbleThe Australian Property bubble is an observation that real estate prices in Australia are valued at more than they are worth. This is a real estate bubble....
- British property bubble
- Indian property bubbleIndian property bubbleThe origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a historical lows of 7.5% in early 2004. This prepared the basis for the increase in real estate property prices...
- Irish property bubbleIrish property bubbleThe property bubble in the Republic of Ireland began in 2000 and peaked in 2006, as with many other western European countries, with a combination of increased speculative construction and rapidly rising prices....
- Japanese asset price bubbleJapanese asset price bubbleThe was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices were greatly inflated. The bubble's collapse lasted for more than a decade with stock prices initially bottoming in 2003, although they would descend even further amidst the global crisis in 2008. The...
- New Zealand property bubble
- Romanian property bubbleRomanian property bubbleAfter the relative calm of the decade of the 1990s, since 2002 Romania has experienced a dramatic increase in property prices. Between 2002-2007 the median price for an old communist-era apartment rose by a factor of 10 , from around €10,000 to circa €100,000...
- Spanish property bubbleSpanish property bubbleThe Spanish property bubble refers to the massive growth of real state prices observed, in various stages, from 1985 up to 2008 in Spain. The housing burst can be clearly divided in three periods: 1985-1991, in which the price nearly tripled, 1992-1996, in which the price remained somewhat stable,...
- Core Economics animated Real Estate Rollercoaster Ride