Regional aspects of the housing market

Authors Hviid, Simon Juul; Hvolbøl, Tina Saaby; Pedersen, Erik Haller
Subject Danish Economy; Other economic analyses
Type Monetary Review  
Year 2016
Published 26 January 2017
Abstract icon The housing market has been picking up over the last three to four years. This development has been particularly pronounced in the Copenhagen housing market, which tends to set the course for the rest of Denmark. In this article, a demand relation is estimated for the Copenhagen market for owner-occupied flats, and the conclusion is that the price level i Copenhagen is high relative to incomes and interest rates. Hence, there is a considerable risk that continuation of the price increases of recent years may be followed by corresponding falls. The Copenhagen housing market is more vulnerable to sudden interest rate hikes than the rest of the country. The combination of high interest rate sensitivity and high house prices increases the risk that even a small rise in interest rates could trigger price falls.