In the past twelve months, house prices nationwide have risen by 20.1%, the fastest pace since autumn 2017. For the first time since mid-2020, when the current surge in house prices began, property in regional Iceland is now rising fastest. The YoY increase in house prices outside greater Reykjavík now measures 20.8%, followed by multi-family homes (20%) and single-family homes (19.7%) in the capital area.
Prices look set to keep rising with no end in sight, and we expect them to keep climbing in coming months, or until supply shortages are addressed. With higher interest rates and increased supply, the housing market will ultimately cool down.
Imported goods prices on the rise
Chief among other components weighing heavily in the May rise in the CPI were food and beverages and travel and transit. Food and beverage prices rose 0.92% MoM (0.14% CPI effect), owing to a broad-based increase, although grains, meat, and dairy products stood out from the rest. In the travel and transit component, new motor vehicles rose in price by 2.1% (0.11%) and petrol 2.9% (0.10%).
This was offset, however, by a 5.4% decline in airfares (-0.11% CPI effect), which was in line with our forecast. The dip in airfares accords with the seasonal pattern and comes on the heels of a nearly 22% surge in April, some of which was a temporary spike stemming from the Easter holidays.