Iceland too had its housing boom. As you may observe in the accompanying graph, housing prices were fairly stable between 1994 and 2000, they increased gradually between 2000 and 2004 and then BOOM, they took off between 2004 and 2008. Then came the financial collapse in 2008 and prices dipped, with the index falling steadily from 357.4 in January 2008 to 304.9 in January 2011, but seemingly not much given the magnitude of the financial collapse.
Now, contrary to The Central Bank’s predictions that prices would continue to fall through the year, prices have been steadily climbing in the capital area since January with the index peaking last month at 320.8 (not seen since March 2009). A real estate agent that the news-site Eyjan.is interviewed in July noted that there hasn’t been this much movement in the market since the crash. In other words, the housing market seems to be recovering quickly.
Yet it seems strange that prices are rising as a greater number of individuals are reportedly defaulting on their loans and declaring bankruptcy (which is not surprising given the rate at which loans were given out during the boom). That same real estate agent who spoke to Eyjan speculates that the Icelandic banks and the Housing Financing Fund, which own thousands of apartments in Reykjavík, may be steering prices by keeping their properties off the market.
If this is the case, you have to wonder whether the strategy is sustainable given reports that the Housing Financing Fund claimed 1069 apartments last year (three times as many as the previous year) and housing loan payments 90 days past due now make up ten percent of its loaned funds. The State Treasury has been injecting cash into the Fund, but surely it’s not limitless. Speculate we can, but really only time will tell if Iceland has in fact seen the worst of the housing bust.