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Danish Housing Slump Is Over, Central Bank’s Callesen Says

January 31, 2013

Denmark’s Housing Slump Is Over, Central Bank’s Callesen Says

Bricks and construction equipment stand outside a residential apartment block at the Islands Brygge, or Iceland Quay, development in central Copenhagen on July 2, 2012. Photographer: Linus Hook/Bloomberg

Denmark’s housing market is past the deepest point in its slump and the key triggers for a recovery are now in place, central bank Deputy Governor Per Callesen said.

“Denmark is a healthy economy, a surplus economy” so “there are no rational economic reasons why it shouldn’t pick up,” Callesen said in an interview in Copenhagen yesterday. The housing market has now “bottomed out,” he said.

The comments follow a more-than 20 percent plunge in Denmark’s house prices since a 2007 peak. The nation’s gross domestic product probably contracted 0.4 percent last year, matching a decline in the 17-member euro area, as households stopped spending and businesses shelved investments, the government estimates. Denmark’s burst housing bubble also brought with it a regional banking crisis that has wiped out more than 20 lenders since 2008.

The nation’s economic plight has prompted lawmakers to pass legislation that encourages bank mergers in an effort to support the industry and underpin lending. At the same time, home-loan rates sank to record lows last quarter as Denmark’s mortgage bond market, the world’s third-largest, attracted investors eager to escape the debt crisis inside the euro area.

An increase in Denmark’s house prices “could happen” this year, Callesen said.

Record Stocks

Denmark’s benchmark share index is already signaling the economy is in recovery mode, and traded at a record high today after gaining as much as 1 percent. That follows a 9.2 percent increase this year, beating a 3 percent rise in the STOXX Europe 600 Index. Denmark’s all-share index is up 8.2 percent this year.

It costs less to insure against non-payment of Danish government bonds than it does on debt sold by the German state. Five-year credit default swaps on Denmark traded at 30 basis points today, compared with 43 basis points on Germany and the U.S., according to data available on Bloomberg.

Though Danish households carry the world’s highest personal debt burdens relative to their disposable incomes, that’s backed by pension savings of about 150 percent of gross domestic product, the central bank estimates. Government debt is less than half the euro-area average, and will decline to 44.7 percent of GDP this year, according to the European Commission.

Foreclosed Homes

The number of foreclosed homes fell for a second consecutive quarter at the end of last year, the Danish Mortgage Bankers’ Federation estimates, while seasonally adjusted house prices have been stable over the seven months through November, according to Nordea Kredit.

Prices for single-family homes slipped 1.1 percent in November from a year earlier and fell 0.6 percent from October, Statistics Denmark said yesterday. Apartment prices rose 3.2 percent on the year, it said.

Danes now face higher interest rates as demand for haven assets wanes amid signs the euro area’s debt crisis is abating. The central bank last week raised its main rates for the first time since July 2011 to defend the krone’s peg to the euro.

Even after the rate increase, Denmark’s certificate of deposit rate remains below zero at minus 0.1 percent. Its lending rate is 0.3 percent.

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net


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