Trend: house prices up 3.04% y-o-y in 2018

Iceland’s housing market is now cooling, amidst slowing economy. Nationwide house prices rose by just 3.01% during 2018, a sharp slowdown from a y-o-y growth of 12.89% in the previous year. In fact in a quarterly basis, house prices actually dropped 0.29% in Q4 2018. 

Iceland saw a housing boom from 2002 to 2007, with house prices surging by more than 73%. However house prices plunged by 32.5% from early-2008 to 2010, due to Iceland's extreme exposure to the global crisis. The housing market was quiet during the next three years, with house prices rising a meagre 5%. Iceland then saw strong house price rises of 5.22% in 2014, 6.89% in 2015, 12.55% in 2016 and 12.89% during 2017, attributed to strong demand coupled with limited housing supply, especially in the capital city of Reykjavik.

Analysis: Housing boom is fuelled by strong tourism

The continued increase in property demand in Iceland is fuelled by booming tourism. In 2018, foreign visitor arrivals to Iceland through the Keflavik Airport rose by 5.5% to more than 2.3 million people from a year earlier, according to Icelandic Tourism Board. Most tourists come from the United States (30%), the United Kingdom (12.9%), Germany (6%), Canada (4.3%), France (4.2%), Poland (3.9%) and China (3.9%).

Rents, rental yields: no reliable yields data

Recent news:  Iceland's economy was estimated to have expanded by about 3.8% in 2018, a slowdown from expansions of 4% in 2017, 7.2% in 2016 and 4.1% in 2015, as the economy approaches full capacity. Economic growth is projected to slow further to 1.7% this year, the slowest pace since 2012, according to Statistics Iceland.