Denmark’s central bank slashed its house price forecast for 2023 as borrowing costs are spiking and purchasing power is eroded by inflation.
(Bloomberg) — Denmark’s central bank slashed its house price forecast for 2023 as borrowing costs are spiking and purchasing power is eroded by inflation.
House prices in the Nordic country, which had the world’s longest stretch of negative interest rates, are falling faster than in the euro area, Nationalbanken said on Wednesday. Danish house prices will probably shrink 9.4% this year, which compares with the bank’s September prediction of a 5.6% drop.
Its projection comes after Danish home prices fell for a seventh month in January, reaching a 10% decline from a June peak. Its decline has echoed that of neighboring Sweden where the market has taken a breather after an about 15% drop, among some of the deepest globally.
The 2023 fall — which would be the steepest since 2009 when the market was hit by global financial crisis — will be sandwiched by more modest declines of 0.4% last year and 0.3% next year, setting the Danish housing market up for three straight years of contractions.
The central bank, which has raised interest rates five times in eight months to protect the krone’s peg to the euro, also urged the government to make sure a housing tax reform, which has been postponed until 2024, proceeds as planned. It will have a “stabilizing effect” on the whole economy, it said.
“The reform ensures that housing taxes will again rise and fall with house prices, contributing to reducing fluctuations in house prices,” the bank said. “If the housing tax reform had been in place before the pandemic, the current price declines in the housing market would likely not be as pronounced.”
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