4
Debt
Debt to credit institutions and central banks increased by DKK
5.1bn to DKK 14.6bn (DKK 9.5bn at end-2022), mainly due to
increased repurchase agreements with Nordea Bank following
the refinancing auctions in June 2023.
Bonds in issue at fair value were down by DKK 3.6bn to DKK
386.1bn (DKK 389.7bn at end-2022) after offsetting the
portfolio of own bonds. The decrease was mainly due to the
decrease in loans at nominal value.
Equity
Including the net profit for the period, total equity amounted to
DKK 21.8bn at the end of June 2023 compared with DKK
22.3bn at end-2022 and DKK 21.7bn at the end of June 2022.
The property market
The economy
The global economy got off to a good start in 2023. The sharp
fall in energy prices and the surprisingly rapid reopening of
the Chinese economy provided the backdrop for an increase
in confidence indicators for businesses and households
globally.
It is mainly the services sector that benefits from better
conditions as consumers have a pent-up need for leisure
activities after the pandemic, while the manufacturing sector is
more affected by the high inflation and rising interest rates.
The strong demand for services has been decisive for the
labour markets’ resilience to monetary policy tightening.
Consequently, unemployment is still very low in both the US
and Europe and the demand for labour is strong.
A result of the strong labour market is historically high wage
growth in many countries over the coming years, increasing
the risk that high inflation will take hold. There are already
signs that inflation is more stubborn than previously expected.
Headline inflation has for a while been falling sharply in both
the US end Europe thanks to lower energy prices. Underlying
inflation – core inflation – is causing growing concern among
central banks. Monetary policy easing is therefore not
expected until core inflation is also under control and
approaching the 2% target. We expect that this will happen in
2024 as interest rates are expected to be close to the top and
to be lowered in 2024.
We expect global growth in the region of 3% this year,
whereas 2024 will see slightly weaker growth. But these
forecasts are subject to a lot of uncertainty, not least related
to the significant monetary policy tightening. It thus remains
uncertain if central banks will manage to administer just the
right dose of monetary policy tightening to lower inflation
without a hard landing of the economy. If the period of high
inflation is extended, it will delay the recovery of the
households’ purchasing power.
In Denmark, average inflation reached 7.7% in 2022, which is
the highest level since 1982. The peak so far was reached in
October 2022 with an annualised inflation rate of 10.1%.
Subsequently, however,
the annual rate of price increase has
fallen back again and was down to only 3.1% in July.
The labour market has continued to surprise positively.
According to Statistics Denmark, employment has increased
almost continuously for the past two years and by nearly
23,000 people during the first six months of 2023 alone. We
expect unemployment to rise slightly in the second half of
2023 as the number of vacancies is falling and companies'
own employment expectations are negative.
Property prices and market activity for owner-occupied
dwellings and holiday homes
During the coronavirus pandemic Danish housing prices rose
steeply. During that period low financing costs, robust growth
in disposable incomes and greater appreciation of homes
were the main drivers of the much stronger housing market
demand.
However, in line with rising interest rates and high consumer
prices, the trend has reversed, and according to Boligsiden.dk
the price of both single-family houses and owner-occupied
flats fell by approx. 10% from spring 2022 to February 2023.
However, in recent months the fall in prices slowed down, and
in many parts of the country prices increased in the period
March to June 2023.
We believe that it is the low supply in particular that prevents
house prices from falling further. Despite lower trading activity
over the past year, there is still not much for sale. This gives
sellers the opportunity to get a better price for their property.
There is great uncertainty about developments in the housing
market in the coming years, but we assess that there is a risk
of a small price fall in the second half of 2023. In 2024 we
expect mortgage interest rates to start falling again, and that,
combined with higher real wages and lower property taxes as
a result of the housing tax reform on 1 January 2024, will
again cause house prices to rise. For apartments in larger
cities we still expect declining prices driven by the negative
effect of the tax reform on these apartments.
Interest rates
The bond market is affected by the macroeconomic trends
and the high inflation. The coupon rate on the fixed-rate 30-
year loans is currently 5%, the same rate as at the beginning
of the year. However,
the interest rate has risen sharply since
the beginning of 2021 when the coupon rate was 0.5%.
The interest rate on variable-rate loans has increased in 2023.
At the beginning of 2023 the interest rate on F3 and F5 loans
was approx. 3.6%, while the interest rate at the end of June
2023 was approx. 3.9%.
The interest rate on “Kort Rente” loans has also increased in
2023. In the first half of 2023 the interest rate was set at
approx. 3.0%, while it is up to 4.0% in August. Thus, short-
term mortgage interest rates have risen the most in the first
half of 2023.
The rise in short interest rates is due to the monetary
tightening as both the US Federal Reserve and the European
Central Bank (ECB) have a 2% inflation target. Both central
banks therefore raised their target rates in the first half of
2023.