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Denmark offers homeowners 20-year loans at a fixed interest rate of zero

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Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#21

Post by lotsofpulp »

Codes wrote: post #17
jariel wrote: post #4

Can you say 'housing inflation'? All this does is introduce more monetary demand for housing, increases prices, and stretches out credit putting further distance between those with no homes, and those with the biggest. Housing may be one of the largest drivers in personal wealth in our era - the more you can afford for a down payment and payments, the greater your financial leverage over those with less leverage. And…

The inflation is only a problem in the biggest cities (eg. cph, Odense, Aarhus) In some parts of denmark the prices actually goes down (Southern jutland) I live 80 km's from Aarhus and my house has only gained 7% in value over the last 6 years.

It’s the same in the US. Prices in vast areas are stagnant, but some areas skyrocketed. It’s just an exacerbation of the growing wealth/income divide.

Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#22

Post by martin_bech »

pizza234 wrote: post #13
jcbrand wrote: post #2

House prices are driven upwards due to low interest rates, so this move will most likely only exacerbate the already high house prices. I'm not sure about Denmark, but in Germany house prices have about doubled in the last 10 years, (with the ECB insisting there's no inflation). Given the choice between high interest rates and cheaper house prices, versus low interest rates and expensive houses, I'd rather take the f…

I'm very skeptical at the following claim, if taken at face value: > Germany house prices have about doubled in the last 10 years In the capital, prices 10 years ago were extremely low. People who bought apartments between 10 and 20 ago bought them as low as 1000€/sqm, which is exceptionally low for a European capital. Under such conditions, price doubling is expected independently of any policy.

German housing is a litle different, as many prefer to rent, so less demand for beeing an owner.

Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#23

Post by bjeds »

frafra wrote: post #12
jcbrand wrote: post #2

House prices are driven upwards due to low interest rates, so this move will most likely only exacerbate the already high house prices. I'm not sure about Denmark, but in Germany house prices have about doubled in the last 10 years, (with the ECB insisting there's no inflation). Given the choice between high interest rates and cheaper house prices, versus low interest rates and expensive houses, I'd rather take the f…

You are right about the house prices in Germany, but your statement about ECB is not entirely correct. ECB does not "insist there is no inflation" in Germany or in Europe: in both cases it has been around 2 % for the last 20 years: https://portal.dataviz.ecb.europa.eu/views/HICP_dashboard_ET... There is a reason why the ECB estimation of inflation (HICP) seems lower than expected in your experience: it does not take…

I may be tired or dumb, but your argument sounds circular to me. Of course the ECB won't insist there is no inflation if they themselves have defined housing to not be included in the definition they use to measure inflation. This doesn't mean that the parent commentator is wrong nor does it imply that ECB is correct in their definition. For most people, housing is a significant cost in day to day life, and will of course be felt as inflation, regardless of how it's defined and measured in monetary policy.

If it were up to me, housing should also be included in the definition of inflation. That would be a good way to lay bare the downsides with an aggressively expanding monetary policy.

Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#24

Post by zaptheimpaler »

leokennis wrote: post #14

I'm very far from an economist. But in school I learned banks loan out "your money" to companies, for which they receive interest, which they also use to pay you interest. So when loaning money requires 0% of interest payments, and saving money pays out 0% of interest...that seems wrong?

It means there is much more money than profitable investments for it in the world. i.e the balance of power is shifting towards people who can build things.

Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#26

Post by riffraff »

leokennis wrote: post #14

I'm very far from an economist. But in school I learned banks loan out "your money" to companies, for which they receive interest, which they also use to pay you interest. So when loaning money requires 0% of interest payments, and saving money pays out 0% of interest...that seems wrong?

banks have fees that they charge on top of the base rate, so they still earn money.

But anyway, the way negative/zero interest rates work is: if you can get money lent to you at X, you can lend it to someone else at X+1.

Currently, some entities can get money with negative/zero interest rates, and so can re-lend it at zero and still make a profit.

Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#27

Post by zo1 »

frafra wrote: post #12
jcbrand wrote: post #2

House prices are driven upwards due to low interest rates, so this move will most likely only exacerbate the already high house prices. I'm not sure about Denmark, but in Germany house prices have about doubled in the last 10 years, (with the ECB insisting there's no inflation). Given the choice between high interest rates and cheaper house prices, versus low interest rates and expensive houses, I'd rather take the f…

You are right about the house prices in Germany, but your statement about ECB is not entirely correct. ECB does not "insist there is no inflation" in Germany or in Europe: in both cases it has been around 2 % for the last 20 years: https://portal.dataviz.ecb.europa.eu/views/HICP_dashboard_ET... There is a reason why the ECB estimation of inflation (HICP) seems lower than expected in your experience: it does not take…

Well if house prices have indeed doubled in 10 years then that means inflation during that period was about 7.2%, not 2% as they claim. Saying inflation is 2% instead of 7% can be seen as "insisting there's no inflation".

I.e. the statement was a bit of hyperbole to indicate that the ECB is hiding or misrepresenting the real rate of inflation.

And without more detailed info, hiding/excluding inflation increases in one of the biggest expenses that people have to account for in their daily life seems like confusion of the highest order.

Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#28

Post by PartiallyTyped »

jcbrand wrote: post #2

House prices are driven upwards due to low interest rates, so this move will most likely only exacerbate the already high house prices. I'm not sure about Denmark, but in Germany house prices have about doubled in the last 10 years, (with the ECB insisting there's no inflation). Given the choice between high interest rates and cheaper house prices, versus low interest rates and expensive houses, I'd rather take the f…

I am paying a 950 euro rent for a <24 sq meters in Copenhagen, not downtown Copenhagen, inc water/electricity/heat/washer/drier. The situation is absurd. Back home (still in Europe) I paid half for 35-40 sq meters. Yes, the salaries offset some of it, but still..

Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#29

Post by miahi »

leokennis wrote: post #14

I'm very far from an economist. But in school I learned banks loan out "your money" to companies, for which they receive interest, which they also use to pay you interest. So when loaning money requires 0% of interest payments, and saving money pays out 0% of interest...that seems wrong?

It's not wrong when the interest for saving money is actually negative. This happens in Denmark

> In Denmark, negative deposit rates are no longer an exotic phenomenon reserved for the largest corporations. Panel B of Figure 3 shows that in February 2020, three quarters of non-financial corporates' deposits were subject to negative interest. The percentage is even higher for non-bank financial firms

https://voxeu.org/article/negative-interest-rates-danish-exp...

Re: Denmark offers homeowners 20-year loans at a fixed interest rate of zero

#30

Post by IkmoIkmo »

frafra wrote: post #12
jcbrand wrote: post #2

House prices are driven upwards due to low interest rates, so this move will most likely only exacerbate the already high house prices. I'm not sure about Denmark, but in Germany house prices have about doubled in the last 10 years, (with the ECB insisting there's no inflation). Given the choice between high interest rates and cheaper house prices, versus low interest rates and expensive houses, I'd rather take the f…

You are right about the house prices in Germany, but your statement about ECB is not entirely correct. ECB does not "insist there is no inflation" in Germany or in Europe: in both cases it has been around 2 % for the last 20 years: https://portal.dataviz.ecb.europa.eu/views/HICP_dashboard_ET... There is a reason why the ECB estimation of inflation (HICP) seems lower than expected in your experience: it does not take…

> it does not take into account owner-occupied housing (OOH) prices

It does however take into account rental prices, which exceed owner-occupied housing costs. So the idea that housing cost inflation is fully absent from EU inflation numbers (not you that's saying it, but sometimes implied in various discussions) isn't quite true, either.

Housing costs as a percentage of income for owner-occupiers hasn't risen all that much due to the low interest rates, and is below peaks we saw in the past. Even in nominal figures, due to lower rates, monthly payments are lower too (ceteris paribus). I don't think including OOH costs would massively increase inflation the way people think, at least not if looked at from a cost-perspective. (i.e., interest, maintenance, taxes, hoa etc).

For example, the total payment on a 300k home with 3.5% rates (like the US) vs 0% rates (like Denmark) is 485k vs 300k. That means in the US you could bid 60% more in a world where interest rates dropped to 0% overnight, while having no change in your total costs. That's what's happening in much of Europe: home prices rising purely due to lower interest rates, without necessarily increasing monthly housing costs, for owner-occupiers.

For renters, different story, but that's included in the inflation figures already.

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