Home prices in Copenhagen almost doubled over the past five years, as Denmark tracked the European Central Bank’s policy rates lower, bringing even mortgage rates below zero in Scandinavia’s smallest economy.
But beyond the city’s tony downtown, which is packed with some of the world’s finest restaurants, free schools, kindergartens and nearly as many bicycles as there are people, the rally in house prices failed to catch on.
ECB President Mario Draghi now holds the power to let more children grow up in Danish suburbia and fill its commuter trains: reversing its historic stimulus push will force Denmark to follow suit to maintain the currency’s peg to the euro.
“When rates start to rise we expect demand to shift, with those areas that have seen the biggest price increases experiencing the biggest change in demand,” says Bjorn Tangaa Sillemann, an analyst at Danske Bank.
Danske Bank’s real-estate brokerage recorded gains of nearly 12 percent in the average price of Copenhagen apartments in the third quarter of this year, while house prices were close to unchanged. Prices just outside the Capital Region even declined, by almost 7 percent.
Sinking rates have helped offset the cost of higher property prices (and the bigger loans that come with them), making it easier for families to live in the city center. Danes can currently take out an adjustable-rate mortgage at a negative rate, though they won’t be paid to borrow as the lender still charges a fee. But as rates in the euro area start going up -- towing Danish ones with them -- the attraction of lower-priced suburban homes will grow, Danske predicts.
Prices of more than 45,000 kroner ($7,000) per square meter have already made some central neighborhoods prohibitively expensive, prompting the government to issue new lending rules to cool the market in the most popular urban areas. By contrast, the average price for houses in suburbs like Solrod and Koge, which are both within a 30-minute commute, is about half as much.
But don’t expect a re-run of the 35-percent drop in Copenhagen prices experienced during the financial crisis a decade ago, said Steen Bocian, the chief economist of the Danish Chamber of Commerce.
More than half of Denmark’s population growth will be in the greater Copenhagen area, which now has a population of about 1.8 million and is expected to reach 2 million by 2030, according to projections by Statistics Denmark. “In modern family life, both parents want to be close to the attractive jobs,” Bocian said.
“That’s the overall mega trend, which will persist,” he said.