Danish house owners finally have something to cheer about after the longest downturn after the 2007 crash, as the housing market is slowly getting back on its feet, according to an economic outlook report by the Skandinaviska Enskilda Banken (SEB).
The 2007 crash saw prices of single-family homes in Denmark fall for five years, while flats had a shorter but more dramatic decline in prices from 2006 to 2009. Prices across the market, however, have been rising over the last two years. “With an improving economy and labour market, as well as very low mortgage rates, we expect this recovery to continue. A positive feedback loop in the economy can thus be expected,” SEB said.
The structure of the Danish mortgage market has undergone many changes and the most significant one is the flexibility of Danish mortgages today compared with 10 to15 years ago when they were only fixed rate loans. Interest-only loans have also become much more common, which means considerable growth in sensitivity of the housing market and the overall economy to short-term interest rates.
SEB said over the next two years, short-term rates are expected to stay very low because of ongoing structural weaknesses in the European economy and Denmark’s fixed exchange rate regime versus the Euro. The long-term vulnerability of the Danish mortgage market has increased because of the changes in mortgage financing, but the medium-term risk as limited.