Danish property bubble of 2000s

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During the Danish property bubble of 2001 through 2006, Danish property prices rose faster than at any point in history, in some years increasing by more than 25%. Apartments and homes near the big cities rose especially fast.

Denmark Constitutional monarchy in Europe

Denmark, officially the Kingdom of Denmark, is a Nordic country. Denmark proper, which is the southernmost of the Scandinavian countries, consists of a peninsula, Jutland, and an archipelago of 443 named islands, with the largest being Zealand, Funen and the North Jutlandic Island. The islands are characterised by flat, arable land and sandy coasts, low elevation and a temperate climate. The southernmost of the Scandinavian nations, Denmark lies southwest of Sweden and south of Norway, and is bordered to the south by Germany. The Kingdom of Denmark also includes two autonomous territories in the North Atlantic Ocean: the Faroe Islands and Greenland. Denmark has a total area of 42,924 km2 (16,573 sq mi), land area of 42,394 km2 (16,368 sq mi), and the total area including Greenland and the Faroe Islands is 2,210,579 km2 (853,509 sq mi), and a population of 5.8 million.

Some of the rise can be attributed to falling interest rates, the introduction of new loan types (such as interest-only mortgages), improving economy and increasing urbanisation, higher wages along with other factors. Some observers have also noted increased interest in homes and a dramatic increase in the number of TV programs regarding home decoration, home sales, gardening etc. The increasing number of parents buying apartments for their children is also an important factor, dramatically increasing the demand on smaller apartments, typically 2 - 3 rooms, thus giving rising prices from the lower segment of apartments.

Interest A sum paid for the use of money

Interest, in finance and economics, is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate. It is distinct from a fee which the borrower may pay the lender or some third party. It is also distinct from dividend which is paid by a company to its shareholders (owners) from its profit or reserve, but not at a particular rate decided beforehand, rather on a pro rata basis as a share in the reward gained by risk taking entrepreneurs when the revenue earned exceeds the total costs.

Loan transfer of money that must be repaid

In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient incurs a debt, and is usually liable to pay interest on that debt until it is repaid, and also to repay the principal amount borrowed.

Mortgage loan loan secured using real estate

A mortgage loan or, simply, mortgage is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".

However, many banks and analysts acknowledge that prices have increased more than can be explained by their models even when taking the economic factors into account and that homes have indeed become less affordable. In particular, it is becoming increasingly difficult for first-time buyers to enter the market, and they now make up a historically low fraction of all buyers.

A first-time buyer (FTB) is a term used in the British and Irish property markets, and in other countries, for a potential house buyer who has not previously owned a property.

This has led some observers to speculate that the Danish real estate market may be in a bubble where price increases have been fueled by speculation beyond what can be justified by fundamental economics. Some have warned that the market may be in for a correction, i.e., major price decreases. Still, as of March 2007, this has not occurred. Apartments in Copenhagen have fallen 7% in the first quarter of 2007 and the supply is still rising.

Real estate is "property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, buildings or housing in general. Also: the business of real estate; the profession of buying, selling, or renting land, buildings, or housing." It is a legal term used in jurisdictions whose legal system is derived from English common law, such as India, England, Wales, Northern Ireland, United States, Canada, Pakistan, Australia, and New Zealand.

Copenhagen Capital of Denmark

Copenhagen is the capital and most populous city of Denmark. As of July 2018, the city has a population of 777,218. It forms the core of the wider urban area of Copenhagen and the Copenhagen metropolitan area. Copenhagen is situated on the eastern coast of the island of Zealand; another small portion of the city is located on Amager, and it is separated from Malmö, Sweden, by the strait of Øresund. The Øresund Bridge connects the two cities by rail and road.

However, there are signs that the market is softening and prices have fallen in some areas. In 2006, the number of homes for sale increased dramatically, tripling in some areas. It was estimated that 10% of all apartments in Copenhagen are for sale. The total inventory of homes for sale totaled more than one average year of home sales. In the statistics for the fourth quarter 2006, some areas experienced a quarter-to-quarter price fall around 4-5%, the first significant fall in over a decade.

Two of the major real estate agencies claim they are observing price falls, with the biggest agency (Home) claiming to have observed falls since July 2006 The softening comes at a time when there has been an explosion in the building of new apartments and homes all around in the country. In Copenhagen alone, as many as 2,000 new apartments are expected to be added to the inventory during 2007.

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Market value or OMV is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may or may not differ in some circumstances.

United States housing bubble economic bubble

The United States housing bubble was a real estate bubble affecting over half of the U.S. states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2012. On December 30, 2008, the Case–Shiller home price index reported its largest price drop in its history. The credit crisis resulting from the bursting of the housing bubble is an important cause of the 2007–2009 recession in the United States.

Housing bubble

A housing bubble is one of several types of asset price bubbles which from time to time occur in the market. The basic concept of a housing bubble is the same as for other asset bubbles, consisting of two main phases. First there is a period where house prices increase dramatically, driven more and more by speculation. In the second phase, house prices fall dramatically. Housing bubbles tend to be among the asset bubbles with the largest effect on the real economy, because they are credit-fueled, because a large number of households participate and not just investors, and because the wealth effect from housing tends to be larger than for other types of financial assets.

A real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets, and typically follow a land boom. A land boom is the rapid increase in the market price of real property such as housing until they reach unsustainable levels and then decline. This period, during the run up to the crash, is also known as froth. The questions of whether real estate bubbles can be identified and prevented, and whether they have broader macroeconomic significance, are answered differently by schools of economic thought, as detailed below.

Irish property bubble

The Irish property bubble was the overshooting part of a long-term price increase of real estate in the Republic of Ireland from the late 1990s to 2007, a period known as the Celtic Tiger. In 2006 the prices peaked at the top of the bubble, with a combination of increased speculative construction and rapidly rising prices; in 2007 the prices first stabilised and then started falling until 2010. By the second quarter of 2010, house prices in Ireland had fallen by 35% compared with the second quarter of 2007, and the number of housing loans approved fell by 73%.

Spanish property bubble massive growth of real estate prices in Spain

The Spanish property bubble is the collapsed overshooting part of a long-term price increase of Spanish real estate prices. This long-term price increase has happened in various stages from 1985 up to 2008. The housing bubble can be clearly divided in three periods: 1985–1991, in which the price nearly tripled; 1992–1996, in which the price remained somewhat stable; and 1996–2008, in which prices grew astonishingly again. Coinciding with the financial crisis of 2007–08, prices began to fall. In 2013, Raj Badiani, an economist at IHS Global Insight in London, estimated that the value of residential real estate has dropped more than 30 percent since 2007 and that house prices would fall at least 50 percent from the peak by 2015. According to Alcidi and Gros note, “If construction were to continue at the still relatively high rate of today, the process of absorption of the bubble would take more than 30 years.”

Indian property bubble

The Indian Real Estate Sector is not as impressive for investments as it used to be from 2001 to 2007. The real estate sector is thought to be collapsing due to increasing costs of financing. Real estate projects in India take a long time to complete due to a complicated and corrupt regulatory mechanism. Several of India's publicly traded real estate firms are in debt. The inventory of unsold real estate assets is growing and it is expected the market will undergo price corrections. According to Mumbai-based market research agency, Liases Foras, 30% of the transaction in the real estate sector is done with black money. Experts expect new property prices to fall up to 50% in next three months in Tier 1 cities.

A real estate trend is any consistent pattern or change in the general direction of the real estate industry which, over the course of time, causes a statistically noticeable change. This phenomenon can be a result of the economy, a change in mortgage rates, consumer speculations, or other fundamental and non-fundamental reasons.

Polish property bubble

Real estate prices rose drastically from 2002 to 2008 in Poland. Between June 2006 and June 2007 the average price of one square metre of residential area in Warsaw rose from 6,683 PLN to 9,540 PLN, or 50% in euro terms. A peak in prices occurred in autumn 2008 as the average price of a square meter of residential space in Poland started to drop by 5% in nominal terms or 10% per year in real terms.

United States housing prices experienced a major market correction after the housing bubble that peaked in early 2006. Prices of real estate then adjusted downwards in late 2006, causing a loss of market liquidity and subprime defaults

After the relative calm of the decade of the 1990s, since 2002 Romania has experienced a dramatic increase in property prices. Between 2002-2007 the median price for an old communist-era apartment rose by a factor of 10, from around €10,000 to c. €100,000. Today some apartments in central Bucharest have prices comparable with those of properties in Paris or London, and in virtually every small town the median housing price rivals that of similar towns in the European Union.

Causes of the United States housing bubble

Observers and analysts have attributed the reasons for the 2001–2006 housing bubble and its 2007–10 collapse in the United States to "everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan". Other factors that are named include "Mortgage underwriters, investment banks, rating agencies, and investors", "low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance" Politicians in both the Democratic and Republican political parties have been cited for "pushing to keep derivatives unregulated" and "with rare exceptions" giving Fannie Mae and Freddie Mac "unwavering support".

Australian property market

The Australian property market comprises the trade of land and its permanent fixtures located within Australia. The average Australian property price grew 0.5% per year from 1890 to 1990 after inflation, however rose from 1990 to 2017 at a faster rate and may be showing signs of a contracting economic bubble. House prices in Australia receive considerable attention from the media and the Reserve Bank and some commentators have argued that there is an Australian property bubble.

There were rumors and speculations regarding the existence of a property bubble in Bulgaria since at least 2006; however, many interested parties tended to discredit such a possibility. Most of all, since the property bubble has been the driving force in GDP growth in Bulgaria most players in the market, including government have been satisfied with the situation.

Australian property bubble

The Australian property bubble is the subject of the Australian property market becoming significantly overpriced and due for a significant downturn. Some commentators, including one Treasury official, claim the Australian property market is in a significant bubble.

Chinese property bubble (2005–11)

The 2005 Chinese property bubble was a real estate bubble in residential and commercial real estate in China. The New York Times reported that the bubble started to deflate in 2011, while observing increased complaints that members of the middle-class were unable to afford homes in large cities. The deflation of the property bubble is seen as one of the primary causes for China's declining economic growth in 2013.

Real estate in China is developed and managed by public, private, and state-owned red chip enterprises. In the years leading up to the 2008 financial crisis, the real estate sector in China was growing so rapidly that the government implemented a series of policies - including raising the required downpayment for some property purchases, and five 2007 interest rate increases - due to concerns of overheating. But after the crisis hit, these policies were quickly eliminated, and in some cases tightened. Beijing also launched a massive stimulus package to boost growth, and much of the stimulus wound up flowing into the property market and driving prices upward, resulting in investors increasingly looking abroad. By late 2014, the IMF warned that a real estate oversupply problem had arisen that threatened to negatively impact the economy, particularly in 2nd and 3rd tier cities. As of 2015, the market was experiencing low growth and the central government had eased prior measures to tighten interest rates, increase deposits and impose restrictions. By early 2016, the Chinese government introduced a series of measures to increase property purchases, including lower taxes on home sales, limiting land sales for new development projects, and the third in a series of mortgage down payment reductions.

Baltic states housing bubble

The Baltic states housing bubble is an economic bubble involving major cities in Estonia, Latvia and Lithuania. The Baltic States had enjoyed a relatively strong economic growth between 2000 and 2006, and the real estate sectors had performed well since 2000. In fact, in between 2005Q1 and 2007Q1, the official house price index for Estonia, Latvia and Lithuania recorded a sharp jump of 104.6%, 134.3% and 106.7%. By comparison, the official house price index for Euro Area increased by 11.8% for a similar time period.

The New Zealand property bubble is an ongoing issue in New Zealand, where house prices have risen considerably faster than incomes. Since the 1980s, various factors including deregulation, immigration and politics have contributed to these rising house prices, with considerable debate over how to address the issue due to its large size relative to the economy.

The Canadian property bubble refers to a significant rise in Canadian real estate prices from 2003 until 2019 and ongoing that some have described as a real estate bubble. Over this period Canada has seen an increase in home and property prices of up to 337% in some cities, leading to a large real estate bubble.

References

  1. ↑ "Denmark 2007" (PDF). Archived from the original (PDF) on 2011-07-11. Retrieved 2008-06-23.
  2. ↑ Recent history of the Danish residential property market, Global Property Guide
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