Húsnæðisbólur

Húsnæðisbólur, or housing bubbles, refer to a period of rapid and unsustainable growth in housing prices, followed by a sharp decline. These bubbles are typically driven by a combination of factors including low interest rates, easy credit availability, speculation, and increased demand for housing. During the boom phase, prices rise significantly, often outpacing economic fundamentals like wage growth or inflation. This period can be fueled by a widespread belief that housing prices will continue to increase indefinitely, encouraging more people to invest in property.

As the bubble grows, affordability becomes a major issue, and the market can become overvalued. Eventually, a turning point is reached, often triggered by rising interest rates, tighter lending standards, or a general economic slowdown. When prices stop rising or begin to fall, it can lead to panic selling, further accelerating the decline. Homeowners may find themselves owing more on their mortgages than their homes are worth (underwater mortgages), leading to foreclosures and financial distress. The bursting of a housing bubble can have significant negative consequences for the broader economy, including reduced consumer spending, increased unemployment, and instability in the financial sector. Iceland experienced a notable housing bubble and subsequent collapse in the years leading up to the 2008 financial crisis.