Denmark: Disaster In The Making

Six years of global central bank debt saving is reaching critical levels.


Rock-Bottom Rates See Danish Homes Sold in Hours
There, the residential property market is booming, driven partly by record low interest rates for mortgage borrowers.

Michael Jensen, a 41-year-old sales manager, was outbid on several flats in downtown Copenhagen before he finally landed one late last year.

“I knew I wouldn’t get it for the asking price, so I upped my offer by 200,000 kroner [$29,360],” he said. “I figured it wasn’t that much money per month because of the low interest rates.”

Apartments in Copenhagen that used to be on the market for months now sell in days or even hours, realtors say, while prospective buyers line up early at open houses and squeeze inside along their rivals.

“People will often put in an offer even before they see the apartment,” said Christopher Christiansen, a property broker at Danish real estate agency Home A/S. “Sometimes they will even sign before they see it.”

...Sune Mortensen, head of retail products at Nykredit, one of Denmark’s biggest issuers of mortgage bonds, said bubble fears are overblown. Mr. Mortensen said he’s encouraged that many mortgage borrowers are locking in long-term fixed rates, even if that means they miss out on the best rates in the short term.

”People know [negative rates are] a fantasy, it’s not how it’s supposed to be,” Mr. Mortensen said. ”So they’re actually behaving quite sensibly. We’re seeing more redemptions and more fixed-rate loans.”
It's sensible for homebuyers to lock in sub-3% interest rates. It is not sensible to have a housing bubble fueled by ECB quantitative easing. ECB policy "forces" Denmark to cut interest rates below zero in order to maintain the currency peg. The Danish krone is undervalued today because the market views it as a safer alternative to the euro, but the central banks actions are eroding this value by taking actions that increase the supply of money & credit. Denmark's central bank is opting for stability now at the price of greater instability in the future.

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