Simon Juul Hviid, Nationalbanken

"Leading indicators of house price bubbles"


Prior to the financial crisis in the mid-2000's house prices increased dramatically and most economists agree that Denmark was subject to a damaging house price bubble. The emergence of a house price bubble can have sizeable implications for macroeconomic as well as financial stability. Such a house price bubble is often a result of self-exciting beliefs, leading to explosiveness of the house price process. This paper investigates the dynamics of house prices in Denmark in order to identify emerging bubbles in due time.
There is wide regional variation in house price developments.

The Copenhagen housing market, in particular, give cause for concern as prices of single-family homes as well as owner-occupied flats have increased substantially more compared to the rest of the country. It cannot be ruled out entirely that the price growth is the result of higher incomes and lower interest rates. However, prices may be pushed up by speculative purchases, entailing that prices do not exclusively reflect underlying economic fundamentals.