Research Euroland
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Denmark: Homebuilding not as exposed to a downturn as in the US
Mon, Apr 21 2008, 11:00 GMT
by Arne Lohmann Rasmussen
- • It would be misleading to equate current developments in Danish and US homebuilding. The national accounts data show that investment in residential construction in Denmark has not fallen at all. True, housing starts showed a sharp decline in Q4 2007, but these preliminary data are subject to significant uncertainty and often show a decline that turns out to be incorrect in the final data.
- • There are several reasons why the Danish residential construction sector should not fear a downturn as seen in the US. Perhaps the primary reason is the widely different funding structures in the two housing markets. There is thus no chance of the Danish housing market facing a subprime crisis with plummeting residential investment.
- • However, the shift in housing market sentiment has led to a backlog of homes for sale not least in Greater Copenhagen. This could put a damper on new residential construction for a while, as new projects are postponed for as long as the supply of homes is high. Luckily, interest rates, price developments and rising disposable income will help offset this trend.
- • The combination of rising disposable incomes and declining interest rates will already this year bring down the housing affordability. This can stabilise the housing market and hence residential construction. Against this backdrop, we expect residential construction activity to slow down in the short term declining 3-5% this year but it may stabilise as early as next year around zero growth.
Published on Mon, Apr 21 2008, 11:02 GMT
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