The Copenhagen Report

by: Tim Anderson (timothyanderson2005@gmail.com)



It's hard to imagine a relatively dry article about the housing market in Copenhagen - The sound of the popping bubble: A bit about psychology and Copenhagen's housing market - a recent article on this blog, going over especially well. Especially as it also happened to be a rather long article - even by my own rather, ahem, lengthy standards.

To my surprise, up to now it is the article that has generated the most emails of any of the articles on this blog. Even more amazingly, it's actually one of the top google hits for 'Copenhagen housing market' at the moment, which is rather funny. So here's a slightly shorter follow-up.

The issue of the buying, selling, renting and moving apartments - and the general state of the Copenhagen housing market - are all subjects that tend occupy a rather significant mental space in the minds of many of those living here (myself included - we're in the process of moving apartments right now). Even if in themselves they aren't the most entertaining of topics.

Which brings me to the latest email I received in relation a couple previous Copenhagen housing market articles written for this blog.

It went like this:

"My interest is as a seller. I put my apartment on the market about 2 months ago and only one person has been to visit. My estate agent recommends I reduce the price and do so as soon as possible...thing is he's not very clear on why exactly other than the volume of properties is increasing. My reservation for dropping now is we're moving into what is typically considered to be a more active season in the market and I had hoped things would pick up...I'm not in a rush to sell the property, but don't want to wait it out and get caught in a readjustment."

The first thing I should say is that I find it odd and rather amusing to be answering such questions. I'm certainly not an expert on this subject - the experience I have comes from selling private jets a few years back, and noting that the behaviour in private jet market largely mirror what happens in the housing market.

Here's my thoughts on this particular question.

The typical market cycle in the housing market is LONG - normally three to four years. Meaning a quick turnaround in the Copenhagen real estate market is unlikely.

To imagine there is any significant 'seasonal variation' in a market like this one - as in a pile of buyers appearing who will suddenly drive up prices or even hold prices to their current level - is purely wishful and unrealistic thinking. There are simply too many apartments for sale in Copenhagen, at the moment. A few extra buyers in the springtime is unlikely to have even the slightest impact on selling prices.

The housing market in Copenhagen has been overheating for too long. But now it is catching up with itself.

A lot of people have second apartments to sell, interest rates have risen slightly, and frankly price inflation bypassed the money that was out there some time ago. Hence why more and more apartments are being put up for sale. A lot of people were essentially speculating on continued price inflation, even if they didn't fully realise that this was what they were doing.

The current downcycle has probably been going for about 12 to 18 months - which is a lot longer than most people realise.

It has really only been in the past couple months that this downcycle has been widely acknowledged in the media (and real estate agents have begun to shake themselves out of denial). And sellers are really only beginning to react, en masse, to the situation now. Hence the flood of asking prices being lowered (check out www.boliga.dk - only in Danish, but just look at the big negative number in the top right corner to get an idea of what is happening - it's the amount asking prices have fallen across Denmark since the beginning of the year).

This is a trend that will continue as more and more people react to the situation, realising that the plans for buying and selling and the amount of money they thought they would make now looks rather different. And a lot of sellers are imagining that they are going to wait the market out and hang tough on their selling price. It's a game of chicken, but the market has plenty of room left to fall. A lot sellers will crumble, and a lot more prices will tumble.

Sure there will always be the remote possibility that something unexpected will happen that will distort the typical lengthy market pattern/cycle and reverse the current trend (for example, the new 200 year mortgage that the government has proposed). But realistically this remains quite unlikely.

Even when the cycle hits the bottom, it will be some time before any significant price recovery can be felt - all the apartments for sale at the moment are not going to get sold overnight.

So it's unlikely an apartment seller will get any higher sales price than right now for at least the next couple years. But prices are quite likely to drop further still. Meaning that for sellers, unless you are willing to hold out for quite some time, the best advice really is to drop the price and sell it when a serious buyer appears.

Because attracting a real buyer is the issue. Playing around with the asking price probably won't make that much difference to this end (of course, it might help a little). It's the selling price that counts, so getting the message across to as many real estate agents as possible that you are a serious seller might.

Let it be known that your selling price is flexible, because sellers will have to match the market to get their apartments sold no matter what their asking price is.

My experience (gleaned from selling jets) is to tell your agent (and everyone else you can) that you want your apartment being one of the next ones (in it's size range) to sell, so they should make sure any buyers they have have see the place and have them make their best offer for it.

Any good agent will understand this as code to mean, 'forget about our asking price, just bring us a serious offer from a real buyer and we'll probably take it'. Still, with everyone clamouring for buyers, even this may not make much difference for some time to come. But it's better than nothing.