Denmark’s Housing Market Woes Continue

Denmark’s housing market continues to lose steam, amidst rising interest rates and slowing economic growth. Demand is now plunging, residential construction activity remains depressed and house prices are now falling.

The price index of one-family houses in Denmark fell by 3% in Q2 2023 from a year earlier, following y-o-y declines of 5.9% in Q1 2023, 5.7% in Q4 2022, and 2.1% in Q3 2022, based on figures released by Statistics Denmark. When adjusted for inflation, house prices actually dropped 6.3% over the same period.

Though on a quarterly basis, nationwide house prices rose by a modest 2.5% (2.8% inflation-adjusted) in Q2 2023, indicating that the rate of fall has decelerated.

“There is a clear decline in private spending and a sharp fall in house prices in Denmark due to higher interest rates and erosion of purchasing power resulting from very high inflation,” said Danmarks NationalBank, the country’s central bank.

Denmark’s house price annual change

Figures released by the Association of Danish Mortgage Banks (ADMB) also depicted a depressed housing market, with falling residential property prices.

By region:

• In the Capital Region, i.e. Copenhagen and its hinterland, the average asking price of owner-occupied flats fell by 7.7% (-10.9% inflation-adjusted) y-o-y to DKK 42,063 (€5,638) per square meter (sq. m.). This was in stark contrast to the y-o-y growth of 5% in Q2 2022 and 17.1% in Q2 2021.
• In the Zealand region, asking prices for owner-occupied flats fell by 6.3% (-9.5% inflation-adjusted) y-o-y to an average of DKK 20,520 (€2,750) per sq. m. in Q2 2023 – in sharp contrast to the prior year’s 3.9% increase.
• In North Jutland, house prices were down by 5.1% (-8.4% inflation-adjusted) y-o-y to an average of DKK 18,730 (€2,511) per sq. m. in Q2 2023.
• In Central Denmark, house prices dropped 3.7% (-7% inflation-adjusted) y-o-y to DKK 26,954 (€3,613) per sq. m. in Q2 2023.
• In Southern Denmark, house prices increased by a meager 0.6% (but fell by 2.8% when adjusted for inflation) to an average of DKK 18,284 (€2,451) per sq. m. over the same period.

By property type, during the year to Q2 2023:

• The average transaction price on owner-occupied flats for sale fell by 4.4% (-7.7% inflation-adjusted) y-o-y to DKK 33,353 (€4,471) per sq. m.
• Detached/terraced house prices dropped 3.7% (-7% inflation-adjusted) y-o-y to an average of DKK 16,258 (€2,179) per sq. m.
• Holiday home prices increased 3.2% (but fell slightly by 0.3% when adjusted for inflation) y-o-y to an average of DKK 22,042 (€2,954) per sq. m.

After plummeting last year, demand remains weak this year. In the first half of 2023, sales of detached/terraced houses fell by 7.6% to 19,177 units from a year earlier, according to the ADMB. Likewise, sales of owner-occupied flats dropped 8% y-o-y to 6,552 units in H1 2023 while holiday home sales were down by 10.7% to 3,235 units over the same period.

Residential construction activity is also falling sharply. Residential permits suffered the biggest y-o-y fall of nearly 49% in the first half of 2023. Starts and under construction also dropped 41.9% and 41%, respectively. Only residential completions increased by a modest 4.1% y-o-y in H1 2023.

Denmark’s housing market is expected to remain weak in the medium term, with Danmarks NationalBank projecting a cumulative house price fall of 9.4% this year.

“Declining house prices are expected to continue in 2023, as interest rate increases take full effect,” said the central bank. “Year-on-year, prices of single-family houses are expected to fall by 9.4 percent in 2023 compared to average prices in 2022, after which prices are expected to fall by 0.3 percent in 2024 and rise by 2.9 percent in 2025. Towards the end of the projection, house prices will begin to rise, as, among other things, other goods and services will have become more expensive, which over time leads to a shift towards increased housing consumption,” the central bank added.

The Danish economy grew by 3.8% y-o-y in 2022, following a 6.8% growth in 2021 and a 2.4% contraction in 2020, mainly driven by strong base effects from high growth in 2021, robust net exports and the build-up of inventories, according to the European Commission (EC).

However, economic growth is expected to slow sharply this year, primarily due to weaker external demand, coupled with high inflation and tightening financial conditions. The International Monetary Fund (IMF) expects the Danish economy to grow by just 1.7% this year while the European Commission released a gloomier outlook, projecting a miniscule growth of 0.3% this year.

Housing boom and bust

Denmark has been through several vigorous boom-bust cycles. From Q1 2003 to Q2 2007, the national average house price rose 75.4%, or 63.6% in real terms, based on figures from the Association of Danish Mortgage Banks (ADMB). Prices in the capital region rose by 88.3% (75.6% in real terms). Property prices peaked in Q2 2007.

Then from Q2 2007 to Q3 2009, property prices fell by about 15.4% (-19.3% in real terms) due to the global financial meltdown. In the capital region, the decline was 25.3% (-28.8% in real terms). The regions that experienced the highest price rises during the boom generally had the biggest price falls.

From Q3 2009 to Q3 2010 there was a short-lived recovery. But property prices fell again by about 9% from Q4 2010 to Q4 2012, due to the eurozone debt crisis.

The housing market has improved gradually since then, with house prices rising by 1.38% (0.71% in real terms) in 2013 and by 1.83% (1.35% in real terms) in 2014. The Danish housing market strengthened in the following years, thanks to robust demand fuelled by negative interest rates.

Performance of the housing market since 2015:

• 2015: house prices were up by 6.57% (6.17% in real terms)
• 2016: up by 4.18% (3.8% in real terms)
• 2017: up by 5.19% (3.88% in real terms)
• 2018: up by 3.48% (2.67% in real terms)
• 2019: up by 3.94% (3.24% in real terms)
• 2020: up by 6.35% (5.87% in real terms)
• 2021: up by 9.63% (6.28% in real terms)

However, the housing market started to slow last year. Nationwide house prices fell by 5.51% (-13.5% in real terms) y-o-y in 2022, as demand plummets due to rising interest rates and falling purchasing power of homebuyers caused by high inflation last year.

Demand is plunging

During 2022, sales of one-family houses plunged by 30% to 46,120 units from a year earlier, following annual increases of 8.4% in 2021 and 17.1% in 2020, according to figures from Statistics Denmark. It was its first decline since 2011. Likewise, sales of owner-occupied flats plummeted by 35.3% y-o-y to just 14,604 units in 2022, in contrast to annual growth of 5.1% in 2021 and 13.8% in 2020.

Demand continued to fall in the first half of 2023:

• Detached/terrace houses: 19,177 units sold in H1 2023, down by 7.6% from a year earlier, according to the ADMB.
• Owner-occupied flats:  6,552 units sold, down by 8% from the previous year.
• Holiday homes: 3,235 units sold, down by 10.7% from a year earlier.

Time-on-market to sell a residence in Q2 2023:

• Detached/terrace house average days-on-market stood at 136 days in Q2 2023, down from 141 in the previous quarter but sharply up from 114 a year earlier, based on ADMB figures.
• Owner-occupied flat average days-on-market was 101 in Q2 2023, down from 118 in the previous quarter but up from 82 in the same period last year.
• Holiday home average days-on-market was 124 in Q2 2023, sharply down from 151 in the previous quarter but slightly up from 121 a year earlier.

Residential construction remains depressed

Residential construction activity started to plummet in 2020, due to coronavirus-related restrictions, and they haven’t recovered since. All housing construction indicators, except completions, showed a downward trend:

• Residential construction permits fell by 23.8% y-o-y to just 27,846 units in 2022, following annual declines of 4.1% in 2021, 4.4% in 2020 and 4.9% in 2019, according to Statistics Denmark. It was the lowest since 2015.
• Starts plunged by 38.5% y-o-y to 24,657 units in 2022, after an increase of 7% in 2021 and a fall of 8.1% in 2020.
• Completions rose by 9.1% y-o-y to 39,845 units in 2022, following an annual decline of 4.9% in 2021 and growth of 11.8% in 2020 and 18.8% in 2019.
• Dwellings under construction fell sharply by 27.6% to 39,939 units in 2022 from a year earlier, the lowest level in six years.

The decline continued this year, with permits suffering the biggest y-o-y fall of nearly 49% in the first half of 2023. Starts and under construction also dropped 41.9% and 41%, respectively. In contrast, completions increased by a modest 4.1% y-o-y in H1 2023.

Before the Covid-19 pandemic, construction activity had been rising strongly. Newly designated development areas have been built close to the center of Copenhagen.

• Ørestad - Between the city center, the airport, and the Øresund Bridge, Ørestad is a new business and residential district measuring 3.1 million sq. m. The city’s main convention center, some of the region’s largest hotels, universities, and multinational corporations are located in Ørestad. It is now home to around 10,000 residents.
• Carlsberg City District - Carlsberg, in the center of Copenhagen, has new houses, schools, and offices, mixed with historical buildings. Recent projects include Bohr’s Tower (88 apartments), Ottilia House (27 residences), and Jacobsen House (exclusive residences).
• Nordhavn - Previously an industrial and commercial harbor, Nordhavn is being converted into a residential and commercial district. Schools, daycare centers, and sports facilities are also being developed.

Other parts of Copenhagen that experienced an upsurge in construction before the pandemic include the southern part of Copenhagen Harbour, the eastern area of Amager, and the southwestern part of the Capital.

In 2023, dwelling stock in Denmark reached 4.82 million, up by 0.9% from a year earlier, according to Statistics Denmark. About 48% of dwellings are owner-occupied while 51% are occupied by tenants.

South Denmark and Central Jutland accounted for about 25% share each of the total dwelling stock, followed by Zealand (18.8%), Capital (17.7%), and Northern Jutland (13.4%).

Mortgage rates are rising rapidly

Mortgage interest rates in Denmark are noticeably increasing rapidly. Yet they remain one of the lowest in the world.

• The short-term mortgage rate averaged 0.90% in 2022, up from -0.52% in 2021, -0.5% in 2020, -0.6% in 2019, -0.51% in 2018, -0.55% in 2017, -0.29% in 2016, and -0.16% in 2015, according to the ADMB.
• The long-term mortgage rate averaged 3.69% in 2022, up from 1.45% in 2021, 1.15% in 2020, 1.61% in 2019, 2.12% in 2018, 2.26% in 2017, 2.57% in 2016, and 2.77% in 2015.

During the first 43 weeks of 2023, the short-term mortgage rate rose further to an average of 3.36% while the long-term mortgage rate was up sharply to 4.70%.