Fear Of Property Flameout As Housing Prices Rise

Iceland’s economic revival is heating up the housing market, especially in Reykjavík, reports the Wall Street Journal.

With inflation back down to between 5% and 6% – inflation was running close to 20% at the height of the 2008 financial crisis – and a booming tourism industry helping to lower unemployment, Iceland is seeing a rise in the demand for housing.

Ásgeir Jónsson, the former chief economist at Kaupthing Bank, one of the institutions that collapsed in 2008, says the capital city’s young demographic is driving demand. “Iceland is a very young country; half of the population is under 34 years old,” Ásgeir said. “It is also growing fast. Reykjavík’s population grows by something like 20% every year.”

This means that currently downtown apartments are selling at around 250 USD a square foot. Ásgeir, now a professor at the University of Iceland, predicts price increases in the city centre of up to 20% this year alone.

The market for single-family homes is recovering more slowly and only high-end homes in affluent neighborhoods are selling well.

“Whatever people think of our economic situation, there are some very rich people in Iceland,” said real-estate agent Aðalheiður Karlsdóttir.

At present, buyers in Iceland are almost exclusively domestic, but Aðalheiður believes this will change as tourism continues to boom and foreigners begin to purchase vacation homes in Iceland.