Unavoidable that Purchasing Power Decreases Skip to content

Unavoidable that Purchasing Power Decreases

Ásgeir Jónsson, director of Kaupthing Bank’s analysis department, said in a meeting on the situation of the real estate market in Iceland on Friday that “no human force” can prevent the purchasing power of the public from decreasing in the next two years.

Therefore it would be irresponsible to grant individuals with low income 90 percent mortgages, Jónsson stated, adding that if the inflation remains as high as it is today, nearly 12 percent, the value of real estate could drop by more than 14 percent, Morgunbladid reports.

The Central Bank of Iceland is predicting that the value of real estate will drop by more than that, indeed by more than Iceland has ever experienced before, Arnór Sighvatssson, the principal economist of the Central Bank, said during Friday’s meeting.

Sighvatsson said the price of real estate had skyrocketed over the past few years and the Central Bank had predicted it would be followed by a serious downturn. Last month the bank predicted a 30 percent collapse in the value of real estate within two years.

“I think the economy will cool down quite suddenly from now on and I think the Central Bank will lower its policy rate rather quickly in 2009,” Jónsson said during Friday’s meeting. The policy rate is currently set at 15.5 percent and has never been higher.

Jónsson said the supply of real estate had not been as high as he had feared and that the most important thing now was to prevent the property market from stagnating. “It is important that people can sell their properties so that we can have trade in this market.”

Last January the turnover on the real estate market was only one third of the turnover one month earlier.

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