Too late? An analysis of borrowers´ increased risk in the Danish housing market downturn

Ianina Sohova & Henriette Rasmussen Walsh

Student thesis: Master thesis


The final project of the Applied Economics and Finance Programme has been defined as an analysis of borrowers’ increased risk in the Danish housing market downturn. The housing market experienced an increase in transactions and prices from 1993 to the end of 2006. The analysis of the house price development cannot be explained just by fundamentals. We have found evidence of the existence of a housing bubble. The bust of the bubble has dramatic consequences for the society as a whole, and in particular on ordinary people (in our case borrowers). The work carried out was split into desk research and field research. The desk research conducted on the basis of the published secondary data gave a general overview about the development of the Danish housing and financial markets. However, the field research gave a better understanding of the problem, and illustrated the hardship of the situations that actual people found themselves in. The analysis of the consequences on a macro and micro level underlined the linkage between the housing market and the rest of the economy. Theoretical analysis of the risks in the housing downturn with the support of empirical evidence determined that the main risk is a loss of income due to different circumstances (unemployment, divorce, illness, etc). Double housing and exposure to volatility of the short interest rate when choosing ARM are considered as new features of risk in the current downturn of the housing market. The downturn of the housing market does not change the risks of borrowers radically, but it makes them more pronounced due to a high level of uncertainty and unpredictability.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2009
Number of pages283