The housing market has been buoyant since shortly after the pandemic struck. Prices rose last year by nearly 16% in nominal terms, or just over 10% in real terms. Demand remains strong, and nominal prices rose by 3% in the first two months of 2022, according to data from Statistics Iceland (SI).
Limited housing supply dwarfed by demand
The steep drop in interest rates at the beginning of the pandemic resulted in the most favourable mortgage lending terms Icelanders have ever seen, catalysing a surge in demand for housing. Rates have now been raised again, however, and the Central Bank’s (CBI) policy rate is back to 2.75%, where it was before the pandemic hit. Thus far, the rate hikes have not affected demand, which is still as strong as ever. Housing market turnover has eased in recent months, however, as has the number of purchase contracts made – probably a sign of limited supply rather than cooling demand. Flats are still selling very quickly, and a hefty share sell at a premium on the asking price. According to the Housing and Construction Authority, a record 40% of all flats that changed hands in December sold at above the asking price.