Sluggish housing market in
2008
After several booming years of brisk turnover and steep
price rises, the housing market cooled rapidly in 2008. The value of
the 3,400 real estate purchase contracts concluded last year
totalled ISK 118 billion (bn), while in 2007 some 10,000 contracts
were signed, totalling ISK 310bn. This is a YoY contraction in
housing turnover of around 65%. Housing sales peaked in 2004, when
the banks entered the housing mortgage market, and 10,058 purchase
contracts were concluded. The housing price trend also turned around
last year as, after climbing sharply in preceding years, prices
dropped by 3% in nominal terms and by close to 18% in real terms.
Schedule for Treasury debt
issuance awaited
Issuance of government-backed debt this year can be
expected to be lively, although the Treasury likely still has
considerable cash in its coffers to meet its rapidly growing
financing needs. In its recently issued monthly report Government
Debt Management, the Central Bank of Iceland (CBI) states that
publication of the Treasury's debt issuance calendar is expected
later this month. Last year, the Treasury issued notes with a total
face value around ISK 133bn and bills amounting to close to ISK 74bn
face value. Treasury bill issuance was revived last December after
having been suspended for some time. According to the CBI buyers
were mainly domestic investors. Given their positive reception in
December, further bill issues are to be expected. Their issuance
coincided with two notes series maturing last year, with a total
face value of over ISK 67bn plus collateral loans to primary dealers
assumed by the Treasury.
Balance on account
According to CBI figures,
the Treasury's balance on its current account was positive to the
tune of ISK 163bn at the end of last November. Although hardly all
of this amount is available to offset an expected budget deficit, we
expect the Treasury's financing needs will be substantially lower
than otherwise in coming months as a result. We also expect the
Treasury to make every effort to spread its debt issuance over as
wide a variety of securities as possible, to avoid an excessive
supply of Treasury notes in the near term. The substantial drop in
yields on Treasury notes in recent weeks suggests that market actors
share this view, although other factors also come into play.
Unemployment on the rise
In recent months, the financial crisis has fuelled a
rapid rise in unemployment in Iceland. Some 3,500 people lost their
jobs in group layoffs in the autumn months, boosting unemployment to
3.5% in December. Currently the number of registered unemployed
stands at 10,850, according to the Directorate of Labour, compared
to only 2,270 at the end of August 2008, more than quadrupling in
only four months.
Unemployment in practically all developed
countries has been increasing markedly and the International Labour
Organisation (ILO) expects an additional 20 million people worldwide
will lose their jobs this year. If forecasts by IMF and the Central
Bank og Iceland prove correct, unemployment in Iceland could rise to
10% this year.
News
Largest turnover