Danish House Prices Decline as Euro Crisis Undermines Confidence

Danish house prices fell close to a seven-year low, threatening to extend the economy’s decline as the crisis in the euro area undermines confidence in Denmark.

House prices slipped 0.7 percent in the third quarter from the three months through June, and fell 3.3 percent from a year earlier, the Copenhagen-based Association of Danish Mortgage Banks said today on its website. The declines brought prices close to a seven-year low reached in the first quarter, according to data provided by the association.

“The economic cycle is still influenced by the European crisis, and that uncertainty keeps buyers out of the market,” Karsten Beltoft, director of the Mortgage Bankers’ Federation, said in a note. “There is no miracle cure to the current crisis and confidence will only come back slowly.”

Denmark’s economy will shrink 0.4 percent this year, the government estimates, matching a contraction in the 17-nation euro area. Danish apartment prices have plunged 25 percent since their 2007 peak, while house prices are down 20 percent over the past five years. The real estate slump left a regional banking crisis in its wake, wiping out at least 12 lenders since 2008.

House prices will fall 4 percent in 2012, the government said on Dec. 13. Prices for single-family homes will remain unchanged next year, before growing 2 percent in 2014, the government said last week.

Haven Status

Denmark’s housing crisis hasn’t scared off investors. The nation, which pegs the krone to the euro, has emerged as a haven from Europe’s debt crisis thanks to a public debt load that’s less than half the euro-zone average. That’s pushed policy rates to record lows and helped drag down borrowing costs on mortgages. Banks have partly offset the declines by charging higher fees in response to stricter capital requirements.

Yields on Danske Bank A/S and Nordea Bank AB’s one-year mortgage bonds sold to finance adjustable-rate 30-year loans fell to 0.35 percent in auctions that ended earlier this month.

Sydbank A/S, Denmark’s third-largest listed lender, said yesterday it will write down an additional 350 million kroner in bad loans, citing increased refinancing risks for retail clients with floating-rate and interest-only loans.

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