The housing market in Denmark has been on a rollercoaster ride since 2022.
Marked by uncertainties stemming from rising energy prices and fluctuating interest rates, housing prices were negatively impacted, and many people who wanted to enter the market found themselves in a challenging and uncertain position.
In March this year, the Danish Ministry of Economy predicted an 8.5 percent decline in housing prices for the year. However, by August, this figure was revised down to 4.5 percent.
In the most recent economic assessment, published on December 12th, the forecast was adjusted once again, this time indicating a more modest drop of only 2 percent for the year.
So, is the housing market in Denmark stabilising – and does that mean prices will increase moving forward?
A positive development – and optimistic 2024 and 2025 outlook
Economy Minister Stephanie Lose announced on December 12th that the government sees the positive development in the housing market as good news.
"We now assess that the housing market has stabilised. That is good news. And it will help to provide security for many Danes," Lose said.
The government is now predicting an upturn in the housing market. The forecast suggests that house prices will increase by 1.2 percent in 2024 and a further 1.9 percent in 2025.
Lose emphasised that the forecast reflects growing confidence in the Danish economy, a recovery for the housing market, and a departure from large price drops in the coming years.
READ ALSO: What prospective homebuyers in Denmark can expect in 2024
The impact of the new property tax rules
The new property assessments are a significant factor contributing to the rebound in the Danish housing market.
The upcoming changes in Danish property tax rules mean that taxation will be based on new assessments of land and real estate values - starting next year.
These valuations, often reflecting higher property values compared to the former ones, primarily due to recent increases in housing prices, will serve as the foundation for the new property tax rates.
Note that most homeowners can expect lower property taxes under these new rules, as the tax authorities have introduced subsidies to offset any potential tax increases resulting from higher valuations.
READ ALSO: What do homeowners need to know about new Danish property tax rules?
This means existing homeowners will not face higher property taxes in 2024 compared to what they would have paid under the existing rules.
However, it's important to note that this tax subsidy will not apply to new homeowners starting January 1st, 2024. The change has added pressure on first-time buyers, leading to a surge in housing sales - particularly in larger cities - in the lead-up to the implementation of the new tax framework.
This sense of urgency has boosted apartment prices and the number of transactions in recent months.
A drop in market activity after the New Year?
Brian Friis Helmer, an economist at Arbejdernes Landsbank, recently told broadcaster DR that the increased activity driven by these assessments may subside after the turn of the year.
This could lead to a temporary slowdown in apartment sales, particularly in the first half of the year, which might also have a knock-on effect on housing prices.
Higher mortgage interest rates for some homeowners
Some Danish homeowners, with certain mortgage types, will face higher payments starting January 1st, 2024.
Denmark's mortgage system relies on banks financing loans through covered bonds, and recent mortgage bond auctions by Totalkredit and Realkredit have led to notably higher interest rates for one-year, three-year, and five-year fixed mortgages.
READ MORE: How much more will mortgages in Denmark cost next year?
For instance, the interest rate for a one-year fixed mortgage will be 3.88 percent, while three-year and five-year rates will stand at 3.39 and 3.37 percent, respectively. These rates represent the highest levels since the international financial crisis in 2009.
Consequently, homeowners in Denmark with existing three-year or five-year mortgages should prepare for significant increases in their monthly payments.
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