Developments in the Market for Owner-Occupied Housing in Recent Years - Can House Prices be Explained? - Part 2

Monetary review, 1st Quarter 2011

Authors Dam, Niels Arne; Hvolbøl, Tina Saaby; Pedersen, Erik Haller; Sørensen, Peter Birch; Thamsborg, Susanne Hougaard
Subject Danish Economy
Type Monetary Review  
Year 2011
Published 10 May 2011
The 2000s saw an unusual surge in owner-occupied house prices. This article estimates a new house-price relation for Denmark in order to explain the development. The analysis shows that in the mid-2000s a house-price bubble arose, which is difficult to explain in terms of the normal workings of the housing market. Moreover, the analysis indicates that the surge in house prices in the years prior to the financial crisis was predominantly driven by the introduction of new loan types and the freeze on nominal property value tax. The article puts developments in Denmark into an international perspective and concludes by discussing whether the current Danish house prices can be said to be overvalued.