In the past twelve months, prices have risen by 2.6% nationwide. Over that same twelve-month period, prices in greater Reykjavík have risen 2.8%, as compared with 1.9% in regional Iceland. Because inflation has outpaced nominal house price increases in the recent past, real prices have fallen.

Rent prices rise as well

Rent prices also increased MoM in March, by about 1.5%. They have risen markedly in the past two months, pushing twelve-month rent price inflation upwards once again. Rent is now up by 6.3% year-on-year and has therefore risen in real terms, unlike house prices. It will be interesting to keep abreast of developments in rent prices in the near future, not least because of the recent amendments to the Rent Act and the impact they could have.

Market temperature drops but remains above freezing

In terms of market transactions, activity in the housing market has eased, with turnover down 7.5% YoY in the first two months of 2026 and the number of purchase agreements down 11%. If we include preliminary figures for March, turnover shrank 11% YoY in Q1/2026, and the number of purchase agreements declined by 12%. The overall contraction for the quarter could turn out slightly smaller, however, once data for March have been finalised.

The housing market turned a corner in 2025, finally slowing down after climbing steeply in the years beforehand. The current situation is quite different, as can be seen in burgeoning housing supply. Supply has grown slowly and steadily, and by mid-March there were 1,000 more dwellings up for sale than at the turn of the year. According to data from the Central Bank (CBI), the rise is due mostly to listings of pre-existing homes and not newly built properties, whereas previously, new builds accounted for the bulk of the increase in supply.

Selling times as expressed in months of inventory (MOI) have grown longer, now measuring about six months, according to CBI figures. For new builds, however, there is far more unsold supply on hand, or about 18 MOI. Furthermore, the share of homes – particularly new builds – selling at a discount on the asking price has grown in recent months. This could indicate that more sellers have had to lower prices in a market weighted down by onerous financing costs.

Housing market set to tread water in 2026

Developments in recent months suggest that demand-side pressures have weakened, which is in line with our own take on the market. We expect little drama from the residential housing market in 2026. In our macroeconomic forecast from late January, we projected that house prices would rise this year by 3.8%, the smallest annual increase since 2013. High interest rates and tight borrower-based measures will keep demand in check, and the outlook is for considerably slower population growth than in the past few years.

Underlying demand for housing remains, however. Over time, housing demand can be expected to grow as inflation subsides, interest rates fall, and economic activity picks up. When that happens, it will be important to keep a firm hand on the tiller so that house prices do not skyrocket again, as has happened so often in the past.