Danish property bubble

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In the period 2001-2006 Danish property prices rose faster than at any point in history, in some years increasing by more than 25% af year. Appartments 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 mortgages), improving economy, increasing wages along with a number of 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.

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 by 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 in terms of major price falls. Still, as of March 2007 dramatic price falls have yet to materialize.

However, there are several signs that the market is softening and prices have fallen in some areas. In 2006 the number of homes put on for sale greatly increased, tripling in some areas. It is estimated that 10% of all appartments in Copenhagen are for sale. The total inventory of homes for sale now total more than one average year of home sales.

Many real estate agents have come forward and warned that prices may be in for a correction and that it is taking longer to sell homes. Analysts have noted falling asking prices but for a long time without any apparent fall in the average home prices in the official statistics. 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 actual price falls, with the biggest agency (Home) claimining to have observed falls since July 2006 The softening comes at a time when there has been an explosion in the buildling of new appartments and homes all around in the country. In Copenhagen alone, as many as 2,000 new appartments may be put on the market during 2007.