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paradigm

House Prices In Denmark + Inflation

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Hi,

I'm from Denmark and like the UK and most of the rest of the world we have seen a house price boom during the past years. In Denmark it appears to have started a little later than in many other countries. It really took off 2-3 years ago when the government allowed interest-only loans to be issued. With these loans you only have to pay the monthly interest for the first 10 years of the loan. The goal of releasing these loans was to make it easier for first time buyers with children and lower incomes to afford buying a home. While this may have worked initially the end result has been quite bad. Buyers are now taking advantage of the loans to buy houses they otherwise couldn't afford. In fact, it has become common practice for real estate agents to specify the monthly payment of the house as the interest part only. This of course have driven up house prices because many people - contrary to recommendations - buy houses where they can barely pay just the interest! This, among other factors, have caused house prices to rise 20-30% a year especially in Copenhagen. Now firemen, nurses, teachers etc. have difficulty affording even very modest homes in Copenhagen and several politicians have made proposals to subsidy home buying for those groups (which would of course only serve to worsen the situation even further!).

Home-owners have truly benefitted from the situation. It has become common practice for people to take a second mortgage in their home, now the value is so much higher than the value they initially borrowed and they use that money for luxury, cars and travelling (in some cases the house price has increased by such much in the time they were travelling that it exceeds what the trip costed). The country seems to be dividing into two social classes: Thouse who owned a house 3 years ago and may now be millionaires (on paper at least) and those (like me) who are not part of the party and are now completely unable to buy anything near Copenhagen at least unless you are willing to take an interest-only loan.

All this has got me thinking about what to do to avoid inflation. I'm a student living in a dorm so I'm not part of the current "price party". On the other hand, I have saved up money during my studies and have no debt. I have planned to use that money to buy a home when I'm done with my studies in a few years and prices have hopefully fallen. The money is in the bank at an interest rate of 1,5% p.a. which is not enough to keep up with inflation. In fact I'm afraid that the current house price boom and all the 2nd mortgages will drive up inflation and erode my savings. So what suggestions do you have for investing the money in a way that will reduce the chance of this happening? Gold is traditionally said to be inflation-stable but on the other hand the price is quite high now which may indicate that it's a bit time to buy. What would you do and do you even think there is a problem? Prices seem to have been fairly stable until now. Actually I'm noticing more and more stuff increasing in price lately and inflation readings from the U.S. have been a bit scary. On the other hand, if the market were to crash I guess inflation wouldn't be a big issue.

What's your take on this? Thank you in advance.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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