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Fear Drives Housing Prices Up

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Fear Drives Housing Prices Up

Snow in Reykjavík.

Photo: Páll Stefánsson.

The price of real estate in Iceland is no longer driven by increased purchasing power, but rather by a lack of housing and the fear that the housing supply will continue to diminish. This is the conclusion of the Economics Division of Landsbanki in its report, published today.

In February, real estate prices in the capital area rose by 2.5 percent, multi-family homes by 2.7 percent and single-family homes by 1.7 percent. The price of multi-family homes went up by 18.7 percent in the past 12 months, and single-family homes by 18.8 percent. These are the largest price increases since the beginning of 2006.

Since the spring of 2016, real estate prices have increased much faster than purchasing power. In addition, the gap between real estate prices and building cost has widened greatly in recent months.

The main reason for the large real estate price increases recently is no doubt a severe lack of housing supply and the fear that this trend will continue. More and more people fight over the apartments that are listed.

The number of homes on the market is down in recent months, and supply has not been this small in the past decade. The time it takes to sell homes keeps getting shorter. That’s a sign of economic expansion and excess demand. No changes are expected in coming months.

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