Real Estate Sales Nearly Double, Rent Prices Rise

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Real estate sales in Iceland nearly doubled between January and February of this year, according to the latest report from the Housing and Construction Authority. The jump is most noticeable in municipalities near the capital area. In Reykjanesbær, not far from the evacuated town of Grindavík, the number of sales tripled between January and February.

Rental prices rise

In Akranes, just one hour north of Reykjavík, the number of real estate sales more than doubled, while in Árborg, South Iceland, they nearly doubled. Rental prices also rose faster than general price levels, according to the report. This was especially true on the Suðurnes peninsula, where Grindavík is located, where rental prices are 16% higher now than they were in September 2023. Rental prices rose 3-9% in the capital area during the same period.

675 Grindavík properties wait for government buyout

The town of Grindavík (pop. 3,600), located on the Suðurnes peninsula, was evacuated in November 2023 due to seismic activity. The town has since seen four volcanic eruptions just to the north, in the Sundhnúkagígar area. Three houses were destroyed in the January eruption and the Government has since offered to buy homes from Grindavík residents if they choose.

On April 12, the first such purchase was approved, and 675 others were waiting to be processed. For comparison, an average of 625 real estate purchase contracts were registered in the capital area and neighbouring municiaplities each month last year. This means that the property purchases of Grindavík residents who are relocating could equal the region’s total monthly demand.

Grindavík residents say the government buyouts are proceeding too slowly, impacting their ability to relocate in the heating-up housing market. They have called a protest for this afternoon in front of Alþingi, Iceland’s Parliament.

In Focus: Indexed Mortgages

indexed mortgage iceland

Iceland’s housing market has undergone rapid changes over the past two years, with prices shooting upward. The market has begun to gradually cool, as a result of rising interest rates, with prices stalling or even slightly lowering in some cases. While there are multiple factors that affect housing prices – including availability and a pandemic-inspired […]

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Housing Prices Drop, Indicating Potential Cooling of Market

iceland housing market

A recent report by the Housing and Civil Engineering Agency may indicate a cooling in Iceland’s housing market.

According to the report, the housing price index has fallen by some 0.4 per cent since last month. Although the change is a relatively humble one, the housing index has not decreased on a month-by-month basis since 2019.

Read more: Housing Prices Highest in Decades

Forecasts predicted a cooling in the housing market, given the recent hike in interest rates. Currently sitting around 7 per cent, the interest rate hike was in response to recent inflation, with the goal of de-incentivizing borrowing to cool off markets. The measures seem to be having an effect, although the high interest rates have made the Icelandic housing market especially difficult to enter for first-time home buyers.

Read more: Mortgage Payments to Continue Rising in Iceland

Una Jónsdóttir, director of Landsbanki’s financial department, stated in an interview with RÚV that “this means that we can fully expect inflation to subside faster than we had originally assumed. Inflation has become very high and housing is one of its main drivers. So a sign of cooling in the real estate market will mean that inflation will go down faster.”

Additional tightening of lending rules has also contributed to the contraction. “It is quite likely that key interest rates will continue to rise,” continued Una, “because we are nevertheless seeing very high inflation. Although there are some clear signs that the real estate market is starting to cool down, the underlying inflationary pressure remains very high. We have to try to get inflation down properly, and in order for that to be possible, interest rates definitely have to be raised somewhat further. We are at well over nine per cent inflation right now for the next few months, and the Central Bank’s inflation target is two-and-a-half per cent.”

Read more: Key Interest Rate Raised to 5.5% in Iceland

housing market in iceland
Data from Registers Iceland

Shown above is the average purchase price for an apartment in the capital region. This year alone has seen explosive growth, with prices rising in excess of ten per cent compared to last year.

Nevertheless, Una cautions patience for those who bought at the peak, stating that home-buyers have little to fear: “It’s only one month and it’s not a huge drop. Housing prices have risen a lot and are still quite high. So I don’t think this should have any major impact on those parties,” she said.

Biggest Residential Construction Boom Outside of the Capital Since Crash

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There are more apartments under construction outside the capital area than there have been since 2008. Vísir reports that there are currently 2,672 apartments being built outside of Reykjavík, the largest share of which—1,100 units—are located in South Iceland.

These figures come via the latest economic outlook report published by Landsbankinn’s economic department. The report also states that based on figures from Statistics Iceland, it appears that apartment prices both in- and outside of the capital are developing in a similar way, although apartment prices outside of the capital are actually rising faster.

Sales have gone up and prices have risen

There’s been a great deal of demand for housing over the last few years and the economic outlook report says that post-pandemic, low interest rates and changing consumption habits have boosted demand considerably. Sales have gone up and prices have risen.

Since last July, the residential market price index has gone up 22% for single-family homes in the capital area, while multi-family units have gone up by 24%. But the index outside the capital over the last twelve months has gone up even more: 29%.

Taking a broader snapshot of housing price increases across the board: compared to pre-pandemic, in February 2020, the residential market price index has gone up between 45 – 47%, regardless of whether it’s single- or multi-family homes in question, within the capital, or outside of it.

Most new builds in South Iceland, fewest in the East, Northwest, and Westfjords

Construction outside the capital is split pretty evenly between multi-unit and single-family residences. So far this year, there’s been a 12% increase in the number of apartments under construction, as compared to an over 33% increase between the end of 2020 and the early months of 2021. Before that, between 2009 and 2016, very few new apartments entered the real estate market, although there were many under construction.

The greatest proportion of new residential builds outside the capital area are, as mentioned, in South Iceland. The housing stock in the region has gone up by 4% in the last year, amounting to almost 500 new apartments. In the first seven months of this year, the stock increased by 1.7%, or just over 200 new apartments.

The housing stock on the Suðurnes peninsula alone has gone up by 2.5% since the start of the year; in 2021, it went up by almost 2% in the course of the year. This is on par with the increase of housing stock throughout all of North Iceland combined, where 260 new apartments were completed last year.

There are currently 500 apartments under construction on Suðurnes and in West Iceland, around 350 in Northeast Iceland, and fewer than 100 in East Iceland, Northwest Iceland, and the Westfjords.

35,000 Apartments to be Built in 10-Year Housing Plan

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State and municipal authorities reached a major agreement yesterday, July 12, in which they committed to expand the supply of housing by 35,000 units over the next 10 years.

The decision came in partial response to a working group formed last year, which highlighted the need for both social housing and affordable housing in Iceland. The working group emphasized the nearly-unprecedented explosion in housing costs over the last two years and the need to increase housing supply in order to insulate Icelanders, especially those with low income, from the effects of the real estate market.

The agreement is to run from 2023 to 2032, with a goal of 4,000 units a year for the first five years. Of these new units, 30% of them are to be affordable housing, and 5% are to be set aside as social housing, housing which municipalities have a legal obligation to provide to some qualifying individuals and families.

Sigurður Ingi Jóhannsson, Minister of Infrastructure, stated that a major goal of the new agreement is to protect residents from the large fluctuations that have characterized the last years. These fluctuations have especially impacted first-time homebuyers, who are having difficulty entering the market because of the ballooning prices.

The agreement also aims to streamline some aspects of housing development, including an increased emphasis on digital housing plans and bringing several other regulatory processes under one common framework.

 

 

Real Estate Value Rises 20% in Iceland

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The total value of real estate in Iceland has increased by almost 20% between years. The value has never risen more in a single year, RÚV reports. The latest property valuation figures were released by Registers Iceland yesterday and will mean higher property fees for owners. Some municipal leaders across the country have stated they will respond by lowering fees.

The Registers Iceland website crashed for a period of time yesterday after the latest real estate valuation was released, as many wanted to check how much the value of their property had risen. Rates vary across the country, with the highest rise in Fljótsdalshreppur district (38.9%) and the smallest in Dalvíkurbyggð municipality (6.2%).

Property valuation in the Reykjavík capital area rose just over 20%. Municipal authorities in Kópavogur and Hafnarfjörður have stated they will lower property fees in response to the steep rise. No such decision has been announced for the City of Reykjavík, where municipal councillors are still negotiating to form a governing majority following last month’s elections.

According to Registers Iceland, the purpose of property valuation is to provide grounds for the levying of public dues.