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Iceland blowing hot and cold?

Jaimie Kanwar

Iceland has achieved stunning house price growth over the last year, reveals Knight Frank...

Coming in at 6^th in Knight Frank's recently released Global House Price Index, Iceland recorded annual house price growth of 19% over the last year – up to and including the first quarter of 2008. This was the highest rate of growth for 2 years, and came despite a cooling economy.

Liam Bailey, Head of Residential Research at Knight Frank, commented: “Iceland's economy has cooled significantly over the last year. With GDP growth falling to less than 1%, a current account deficit at the end of 2006 exceeding 25% of GDP, central bank interest rates of over 14%, and a sharp decline in the value of the Icelandic Krona, a slowdown in the housing market might appear to be inevitable.

“Yet to date, Iceland has not conformed to expectations, as annual house price inflation to Q1 2008 reached 19%, the highest rate of growth for 2 years. Deregulation of the Icelandic lending system fuelled borrowing and contributed to the high growth rates in house prices after 2005, although dependency on foreign investment could leave Iceland vulnerable to a slowdown in global economic growth.”