Number of Apartments Sold in Capital Area Hits Two-Year Low

331 apartments were sold in the capital area in October, a 22% decline compared to the previous month. The number of apartments sold in the capital area has hit a two-year low, Fréttablaðið reports.

Rising interest rates and economic uncertainty

This week, the Central Bank announced that it was raising key interest rates by an additional 0.25%. Short-term interest rates (seven-day term deposits) would thereby reach 6%. The increase, which serve to complicate wage negotiations, came in response to a month-on-month rise in inflation, which rose from 9.3% in September to 9.4% in October.

In an interview with Fréttablaðið, Ýmir Örn Finnbogason, an analyst at Deloitte, explained that rising interest rates had led to a cooling real-estate market; an update to Deloitte’s real-estate dashboard, based on statistics from Registers Iceland, showed a 22% decline in the sale of apartments in the capital area in October when compared to September.

As noted by Deloitte’s report, even though sales have declined, prices have remained almost unchanged between the months: the average price of a square metre for an apartment was ISK 709,000 ($5,000 / €4,800) October, ISK 2,000 ($14 / in €14) higher than in September.

“Rising interest rates and economic uncertainty have an obvious effect,” Ýmir Örn told Fréttablaðið. Ýmir expects the real-estate market to continue cooling over the coming months, in light of growing tensions in the economy and wage negotiations.

As noted by Deloitte, single-family homes and apartments have followed the same trend, with fewer properties being sold in both categories: the number of single-family homes sold in October compared to September declined by 16%. The average price of a square metre also declined from ISK 647,000 ($4,600 / €4,400) to ISK 624,000 ($4,400 / €4,300).

“Real-estate prices reflect consumers’ investment power, which is primarily affected by the cost of borrowing money, i.e. interest rates. And rising interest rates obviously lead to a cooling market,” Ýmir Örn stated.

As noted by Fréttablaðið, the price of apartments and multi-family homes have risen in North and East Iceland but fallen in South and West Iceland.