Detached home prices rise most

All categories of house prices rose in September, albeit to differing degrees. Single-family home prices in greater Reykjavík rose the most, at 2.9% MoM, while condominium prices in the same area rose the least, at 0.5%. In regional Iceland, the opposite pattern emerged, with condominium prices rising by 2.0% and single-family homes by 1.3%.

In the past twelve months, house prices have risen 4.1% nationwide and headline inflation has likewise measured 4.1%, meaning that real house prices are flat at the moment. The twelve-month increase has slowed markedly since measuring 10.4% at the start of the year, in a tangible sign of a cooling market after the past few years’ surge in prices. We expect the twelve-month pace to continue easing marginally in coming months.

Activity continues despite the cooling market

The housing market is still reasonably active. Turnover has averaged ISK 73bn per month thus far in 2025. This is less than in 2024, when the Grindavík effect was at its strongest, but considerably more than in 2023 (ISK 57bn per month) and 2022 (ISK 49bn). The number of registered purchase agreements also suggests that market trading is still fairly brisk. An average of 950 purchase contracts per month have been finalised year-to-date. This figure is below the 2024 average but above those for 2023 and 2022, and broadly in line with the ten-year average.

Residential investment was strong in 2024, and the housing supply mushroomed as a result. According to the HMS, the number of homes on the market continues to rise. In October, just over 5,000 properties were on the market nationwide, 40% of them new builds. The average time-to-sale has grown longer, increasing to 4.7 months in the capital area, 6.3 months on the periphery of the capital, and 4.6 months in regional Iceland, according to HMS data. The average time-to-sale (also referred to as months of inventory, or MOI) is the length of time it takes to sell advertised properties, based on turnover during the month in question.

Very modest price hikes in the offing

Despite the cooling of the housing market, activity is still relatively brisk, as is indicated by the most recent information on house prices and transaction numbers. It is important, however, to refrain from overinterpreting figures from individual months, including those from September, as the numbers can fluctuate widely from one month to another. Because of this volatility, it is more useful to examine developments over longer periods of time. The figures discussed above show clearly that the housing market has cooled off quite a bit. Supply has grown and demand has subsided. In part, however, demand is suppressed by high interest rates and stringent borrowing requirements, although real wage growth and significant household savings tend to pull in the opposite direction.

Our most recent macroeconomic forecast assumes that house prices will rise year-on-year by 5.3% in 2025 and 4.3% in 2026. The change over the two years is similar, but because the measure is between annual averages, the difference between 2025 and 2026 projections totals 1 percentage point. In terms of the house price index for the first nine months of the year, prices would have to stand virtually still for the remainder of 2025 in order for the forecast to materialise.

In 2027, demand is expected to perk up again, fuelled by lower inflation and interest rates coupled with stronger economic activity. Our forecast assumes a 4.6% YoY rise in house prices, but little change would be needed to push prices higher than this. It is highly important to ensure that the supply of new homes is sufficient to meet demand, as is highlighted by previous experience of supply shortages and the associated surge in prices. Based on our inflation and house price forecasts, real price increases will be very modest over the forecast horizon, especially in comparison with the price hikes of recent years.