Denmark’s Deepening Housing Losses Wipe Out Seven Years of Gains

Denmark’s house prices dropped last quarter as the Nordic nation’s economy contracted the most since the height of the global financial crisis, driving property values down to 2005 levels.

House prices sank 2.8 percent in the three months through December from a year earlier, the Danish Mortgage Bankers’ Federation said today in an e-mailed statement. Prices declined 2.5 percent from the previous quarter, it said.

Denmark’s property prices have dropped more than 20 percent since their 2007 peak, sending the economy into a recession and triggering a regional banking crisis that’s wiped out more than 12 lenders. Gross domestic product shrank 0.6 percent last year, the biggest annual decline in three years, prompting economists at Sydbank A/S to characterize 2012 as Denmark’s “annus horribilis.”

“The housing market continues to be shaped by the economic uncertainty,” Karsten Beltoft, director of the Federation, said in a statement.

Prices dropped even after investors pushed mortgage bond yields to record lows amid demand for assets sold by the AAA rated nation.

Psychological Effect

“Psychology is the only obstacle in the Danish property market with financing available and prices coming down,” Lise Nytoft Bergmann, a housing market economist at Nordea Bank AB in Copenhagen, said by phone. In 2005, “after 12 years of gains, house prices were perceived to be ridiculously high. That isn’t the case now. Home owners were used to milk and honey flowing through the streets, so buyers are waiting for the turnaround.”

Denmark, which pegs the krone to the euro, emerged as a haven from Europe’s debt crisis last year thanks to a public debt load that’s less than half the euro zone’s average. That’s pushed policy rates to record lows. 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’s one-year mortgage bonds sold to finance adjustable-rate 30-year loans fell as low as 0.35 percent in auctions that ended earlier this month.

While house prices have continued to sink, Denmark’s apartment prices are showing signs of rebounding, “reflecting a somewhat brighter picture,” Beltoft said.

Apartment prices rose 3.9 percent from a year earlier and gained 1.4 percent from the third quarter, as buyers converged on major cities, the federation said.

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