Iceland’s Central Bank Predicts Collapse in Real Estate Skip to content

Iceland’s Central Bank Predicts Collapse in Real Estate

The Central Bank of Iceland announced yesterday that, according to its estimates, the price of real estate in Iceland will plummet by 30 percent in two years. Real estate agents say this is an “unsubstantiated apocalyptic forecast.”

“It is completely inconsistent with what the analyst departments of the banks have been forecasting,” Grétar Jónasson, chairman of the Association of Real Estate Agents in Iceland, told Fréttabladid. “The Central Bank has to present its reasoning; otherwise it is nothing but an unsubstantiated apocalyptic forecast.”

The Central Bank bases its forecast on a collapse in the value of properties on the decrease of disposable income, increasingly limited access to loan markets and an increased supply of apartments.

Jónasson said the Central Bank’s forecast can have a damaging and unnecessary impact on people’s financial situation. “Nothing indicates that the price here will collapse and if anyone predicts that it will, like public institutions, the least they can do is present a transparent and clear argumentation.”

Ingólfur Bender, director of Glitnir Bank’s research department, said he does not expect the same development to take place in Iceland as in many countries abroad where the price of real estate has dropped considerably.

“We don’t have much speculation and the Housing Financing Fund and the pension funds are providing the market with financial resources. The supply of loans in the real estate market abroad has, however, almost come to a halt because the banks aren’t granting loans anymore,” Bender explained.

Gylfi Magnússon, an associate professor in the business and economic department of the University of Iceland, disagrees, saying it is natural for the price of real estate to drop considerably considering the current market situation. “The banks have stopped granting loans, almost without exception, and that of course has great influence on demand in the market.”

Click here to read more about the real estate market in Iceland.

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