Unsold new apartments jump 85% in a year

Completed but unsold apartments rose by 85% in a year, while housing demand weakened, according to a new report by Landsbankinn cited by mbl.is. The bank expects modest house-price increases in the coming months and a further contraction in residential investment.

A September count by the Housing and Construction Authority found about one-third more completed unsold apartments than in its previous count in March. More homes have come onto the market in recent months, while the number of purchase agreements so far this year has fallen compared with the same period last year.

Unsold homes are taking longer to sell, especially newly built apartments, which had an inventory period of nearly 16 months in August. In the capital region, 51% of new homes sold that month went for less than their asking price, the highest share since mid-2020. In recent years, the proportion has been about 40%.

The bank says the large number of completed unsold new homes is limiting price rises and reducing developers’ incentive to build more. House prices rose 1.8% in the 12 months to the latest data, from the Housing and Construction Authority. In September, inflation outpaced house-price growth for the 11th consecutive month, meaning real house prices continued to fall year on year.

Landsbankinn expects high interest rates and weaker economic activity to constrain demand in the short term. It forecasts that interest rates will begin to fall in the first quarter of next year, gradually supporting demand. The bank expects modest nominal house-price increases this year and next, with growth picking up later in its forecast, which runs to the end of 2029.

Residential investment fell by more than 5% last year and 8% in the first half of this year. The bank forecasts declines of 6.7% this year and 5.5% next year, followed by slight growth in the final two years of its forecast. It also points to falling construction-sector turnover, fewer workers and building permits, and lower imports of construction materials as signs that activity is slowing.