The Unassuming Economist

“Danish house prices bottomed out and have recently started to pick up gradually. From the 2007 peak to the 2012 bottom, real house price dropped by about 30 percent. Real house prices started to rise in 2013 and grew 2.6 percent (y/y) in the second quarter of 2014 even though the pace of house price recovery varies across regions and types of housing (e.g., a stronger recovery in the prices of owner occupied flats in the Copenhagen area). Staff estimates based on three different metrics (price-to income ratio, price-to-rent ratio, and model based) suggest that house prices are currently close to fundamentals,” says the latest IMF report on Denmark. 

Moreover, the report says that “Danish household debt continues to be the highest among the OECD countries, in large part to finance housing wealth. Household debt has been always relatively high in Denmark, but it grew rapidly during the housing boom, facilitated by the introduction of deferred amortization loans in 2003, reaching about 300 percent of disposable income. On the other side of the balance sheet, household assets are also large with positive net worth. However, these assets consist mostly of illiquid mandatory pension accounts and housing, leaving households with limited liquid buffers and making them more vulnerable to interest rate shocks. The need to rebuild balance sheets has depressed private consumption, weighing on the recovery in recent years.” Continue reading here. Also, see a special note on the mortgage finance system here.