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Macro indicators

How do changes in the economy reach house prices?

Inflation influences interest rates, rates shape payment burdens and mortgage funding, and that shapes housing demand. Supply, incomes and population growth matter too. This page follows the route in six steps and ends with where the market stands against its own history.

Real change in house prices · 12 months-3.6%House prices adjusted for inflation · September 2026
Over the same period, in krónur+2.1%

House prices keep rising in krónur but are not keeping pace with the price level. The annual change in real prices has now been negative for 15 consecutive months.

Price+2.1%House prices, nominalSeptember 2026
Curve-0.71Curve slope 10y−3y, percentage pointsOctober 6, 2026
Price level+5.9%InflationSeptember 2026
Financing6.99%10-year yieldOctober 6, 2026

Every figure carries its own date. Inflation is monthly, yields daily, arrears quarterly and household balance sheets annual — they do not describe the same moment and are not summed into a single "state of the market".

01The pressure

The inflation everything else responds to

Inflation starts the chain: it decides whether the Central Bank can ease, it erodes the real value of house prices, and it is added directly to the principal of indexed mortgages.

Excluding housing, inflation measures +5.7% against +5.9% with housing — the housing component, including imputed rent measured since June 2024 by rental equivalence using active market leases, is pulling the index up. The wage index rose 5.7% year-on-year in August 2026. Real wages (purchasing power) were essentially unchanged over the same period.

+5.92%Consumer price index, 12 months · September 2026

Source: Statistics Iceland — VIS01000 (consumer price index, with and without housing), LAU04000 (wage index) and LAU04800 (real wage index).

Inflation — with and without housing, against wages
InflationExcl. housingWagesTarget 2.5%
201520172019202120232025-5%0%5%10%15%

The currency that imports inflation

137.2 kr.EUR122.8 kr.USDOctober 7, 2026

A stronger króna reduces imported inflation — in construction materials and energy among others. This is context, not causation: the exchange rate is one factor among many in the price level.

Euro and US dollar against the króna
ISK/EURISK/USD
20162018202020222024202604590135180

Source: Central Bank of Iceland, official reference rate.

02The rates

Long rates sit below short ones

The Central Bank's policy rate mainly influences short-term rates; fixed-maturity government yields reflect longer-term market terms. The shape of the curve is an indication, not a forecast: long rates contain both expectations of future rates and premia for uncertainty and liquidity.

The yield curve is inverted: the ten-year yield sits 0.71 percentage points below the three-year. An inverted curve mainly says the market expects short-term rates to be lower in the coming years than today — it is neither a timing tool nor a forecast of house prices.

8%Central Bank policy rate · October 7, 2026

Source: Central Bank of Iceland — policy rate and nominal government par yields. October 6, 2026.

Policy rate and government bond yields
Policy rate3-year5-year10-year
2016201820202022202420260%3%6%9%12%

A break in a line marks months where the yield was not published.

Where an inverted curve has preceded downturns — chiefly in US data — the lag has been long and variable, and the signal has also misfired: a record US inversion in 2022–2024 ended with no recession. The Icelandic bond market is small, and yields also carry inflation-risk and liquidity premia. Read the shape of the curve as context, not as a timing signal.

Non-indexed — the route to a paymentAs of October 7, 2026

8%Central Bank policy rateOfficial
+ 1Húsgreind's fixed spread, 1 percentage pointAssumption
9%Húsgreind scenario rate — non-indexedAssumption
9.75%Posted variable base rates (Íslandsbanki)Measured

Indexed — the route to a paymentAs of October 6, 2026

3.47%Indexed 5-year government yield (real)Calculated market benchmark
+ 1.3Húsgreind's fixed spread, 1.3 percentage pointsAssumption
4.77%Húsgreind scenario rate — indexed (real)Assumption
4.5%Posted variable base rates (Íslandsbanki)Measured

The scenario rates above do not use banks’ posted mortgage rates: they are computed from a fixed spread and are not measured quotes — Húsgreind separately captures selected lenders’ posted base rates daily and shows them in the “Measured” rung above. The spread does not move when banks’ lending margins move, and real terms also depend on the lender, the fixed-rate period and the loan-to-value ratio. Note too that the two routes rest on different bases: the non-indexed scenario builds on the policy rate while the indexed one builds on the real government yield — the two do not add up into a single chain. For comparison, the nominal 5-year yield is 7.36%. The measured rates are lenders' own posted base rates, captured daily (last captured on October 7, 2026). The scenario rates above remain a fixed-spread model — the measured figures show how that assumption stands against real terms.

03The financing

The inflation compensation that frames the loan choice

Indexed loans can start with a lower payment, but the principal is adjusted in line with inflation. The difference between nominal and indexed government yields is one market measure of inflation compensation. It helps put the difference between indexed and non-indexed loans in context, but it does not on its own say which is better for a household — the lender’s spread, the term, the loan-to-value ratio, fees and refinancing risk all matter too.

Inflation compensation in the bond market is 3.89% at five years. It was 2.36% in January 2020. This is compensation, not a forecast: it also contains a risk premium, liquidity and the supply of indexed bonds.

64.4%Indexed share of the mortgage stock

Sources: Central Bank of Iceland — government par yields (nominal and indexed), and the household mortgage stock at deposit institutions and pension funds from July 2007. Housing Financing Fund loans are not included.

Inflation compensation in the bond market, 5-year
Inflation compensationTarget 2.5%
20202021202220232024202520260%2%4%6%8%

Nominal yield minus indexed yield, same maturity and same month. Calculated, not measured: where either curve is missing for a month, no value is shown.

Household mortgage stock by indexation
IndexedTotal stock
20072010201320162019202220250750150022503000

Amounts in billions of ISK; the gap between the lines is the non-indexed share. The split of the loan stock shows how outstanding mortgage debt is distributed between loan types — it measures neither new lending nor payment burden.

04The households

The capacity that carries the price

What households can pay sets the limit on demand. Two figures indicate their financial resilience: debt as a share of income, and whether people are keeping up with payments. Both describe the position with a lag — annual balance sheets and quarterly arrears show where households stand, not how they are responding to today's rates.

Household debt is 141.5% of disposable income, against 149% the year before. Debt rose 5.4% and disposable income rose 11%, so the ratio fell.

1.12%Household arrears · June 30, 2026

Sources: Statistics Iceland (national accounts) and the Central Bank of Iceland (Financial Stability).

Household debt as a share of disposable income
2003200720112015201920230%65%130%195%260%
Household debt and net financial assets
Net financial assetsDebt
200320072011201520192023025005000750010000

Annual figures in billions of ISK at current prices. Net financial assets are financial assets minus debt — housing itself is not included.

Arrears ratio on lending, households and companies
HouseholdsCompanies
20202021202220232024202520260%2%4%6%8%

Covers all lending at systemically important banks, not mortgages alone. The company line is context, not part of the household position.

The basis of demand

Population

Population growth is a slower demand factor than rates, but it does not go away. Foreign nationals have accounted for most of the growth in recent years.

396,500
Residents
+1.2%
Annual growth
17.9%
Share of foreign nationals
Population by citizenship, quarterly
Icelandic citizensForeign nationals
202120222023202420252026085170255340

Source: Statistics Iceland (MAN10001).

Annual population growth by municipality

  • Grindavíkurbær+6.2%
  • Sveitarfélagið Árborg+3.7%
  • Hafnarfjarðarkaupstaður+2.7%
  • Garðabær+2.6%
  • Ísafjarðarbær+2.0%
  • National average +1.2%
    Akraneskaupstaður+1.1%
  • Akureyrarbær+1.0%
  • Reykjavíkurborg+0.9%
  • Fjarðabyggð+0.8%
  • Mosfellsbær+0.7%
  • Vestmannaeyjabær+0.7%
  • Kópavogsbær+0.2%
  • Reykjanesbær+0.1%
  • Seltjarnarnesbær-0.6%

Source: Statistics Iceland (MAN10001).

05The supply

How long would what is for sale last?

Rates and inflation act on the demand side. Against them stands supply: the number of homes for sale set against the pace at which the market buys. When inventory would last many months, bargaining power shifts to buyers.

At the sales pace of the last twelve months, current supply would last about 12.8 months. Inventory time is longest for apartments, at 13.3 mo.

9,216Homes for sale

Sources: Vísir Fasteignir (active sale listings) and the HMS register (sales pace). The result is a conservative lower bound: Vísir is the largest listings site but not exhaustive, so actual supply is higher.

All12.8months of supply9,216 homes
Apartments13.3months of supply7,263 homes
Detached houses11.2months of supply957 homes
Row and semi-detached11.6months of supply996 homes

By HMS's framing, roughly three to six months of supply is balance and more than six a buyer's market. Above that, homes accumulate faster than they sell, which weakens sellers’ ability to hold price. Daily inventory figures only go back to mid-2026 and are therefore not shown as a time series: Vísir keeps no history and it cannot be reconstructed backwards.

Building costs — annual change
Building cost index
201520172019202120232025-5%0%5%10%15%

The building cost index measures the cost of building — materials, labour and machinery — and is the supply side of the inflation story: rising building costs slow new construction and feed into the price of new homes. Source: Statistics Iceland (VIS13001).

Registered purchase agreements per month
Purchase agreements
201520172019202120232025040080012001600

Registered residential purchase agreements for the whole country, counted by registration month under the same filters as every register figure on this site. Turnover tends to move before price. The running month is not shown — a half month would read as a collapse — and counting by registration can differ from HMS's published figures, which use the contract date. Source: HMS property register.

06House prices

Where the route ends

The nominal price says what a home costs in krónur. The real price shows how house prices have moved once general price changes are taken into account.

House prices rose 2.1% over the last twelve months while the price level rose 5.9%. In real terms the price therefore fell 3.6%.

820.6House price index (March 2000 = 100) · September 2026

Source: Statistics Iceland (VIS01106, VIS01000).

House prices year on year: nominal and real
NominalReal
201520172019202120232025-9%0%9%18%27%

Real change: each month's price index is divided by the consumer price index of that same month, with the annual change computed from that series.

The full published history

Nominal, unadjusted. The long history puts the current slowdown in context.

House price index since 2000
200020042008201220162020202402505007501000

Conclusion

Is the market overvalued?

A national measure of how far house prices sit from their own long-run fundamentals — not a valuation of an individual home, and not a forecast.

Mixed signals · low confidence. Read the measures separately.

-1.2% to +19.5%Span of the measures · not a confidence interval · September 2026Blended gap from the long-run norm: +9.2%

Method: the OECD/IMF approach, averaging two roughly 25-year anchors.

−30% (below)fair value+30% (stretched)
Price to rent vs long-run median
+19.5%
September 2026
Real price vs long-run trend
-1.2%
September 2026

The measures are 20.7 percentage points apart. They compare prices with different long-run references.

House prices and rents — annual change
House pricesRents
2015201720192021202320250%7%14%21%28%

Both sides of the price-to-rent anchor above: the house-price index and the actual-rent sub-index of the CPI (CP041) — exactly the rent series the ratio divides by. When house prices outrun rents, the ratio stretches above its own history. Source: Statistics Iceland (VIS01106, VIS01308).

Construction, supply and corporate risk in Market analysis →Corporate balance sheets, construction pressure and the supply outlook.

Methodology. The underlying data come from Statistics Iceland, the Central Bank of Iceland and the HMS register, plus active sale listings from Vísir. Some published figures are calculated from them — real prices by division with the consumer price index, inflation compensation as the difference of two yields — and the mortgage scenario rates rest on Húsgreind's fixed assumptions, not measurements. Every chart carries its own source and date. This page is not financial advice.