Rauda Husid The Red House is the a restaurant in the middle of Eyrarbakki. Here's a description from their home pagehttp://raudahusid.is:

Mrs. Gudmunda Nielsen built the oldest part of this house, the restaurant on the first floor, in 1919, for her retail shop. Mrs. Nielsen was a person of many talents: an organ player, choir conductor, music teacher and song writer, as well as being very active in the Woman’s Association of Eyrarbakki. She studied business management in Copenhagen before opening her retail shop here, which was considered the trendiest shop in the region.

Thjórsár-lava is the largest lava stream to have emerged in a single eruption since the end of the last Ice Age, some 8,700 years ago. A monstrous eruption took place when a 30 km long fissure opened close to the Veidivötn district in the east. The lava flow spread westward and ended here in the ocean off the south coast, about 140 km from the eruption site, and is between 15 to 40 meters thick. Eyrarbakki and Stokkseyri village stand on the edge of Thjórsár-lava, so this is the best place to see it, but also at the Urridafoss waterfall, which falls down the eastern edge of the lava flow.

Mrs. Gudmunda Nielsen lived in the House, which now hosts the folk museum of the region, and stands a little east of the church. The House was built in 1765 to accommodate Danish merchants who now began to stay in the country during the winter. The House soon became the centre of a blossoming culture and art activities in the area, since Eyrarbakki was the first port of call for foreign influences in music, literature and art, and was the largest trading centre in the country for a very long time.

Icelanders were late to indulge themselves in luxury food like lobster, since lobster fishing didn’t start here in Eyrarbakki until 1954. In the Icelandic national daily, Morgunblaðið, the news that lobster fishing had started in Eyrarbakki made the front page headline on the 29th of August that year. The article also featured a picture of a lobster so that Icelanders would know what this strange creature actually looked like. The Icelandic lobster is known as the Nephrops norvegicusand is somewhat smaller than other lobster species, the largest being 16 -18 cm long.

For ages, Eyrarbakki was “the” town in the minds of farmers along the entire south coast and the region as a whole. This is where the largest warehouses were built and the Episcopal SeeofSkálholt had its harbour and kept its ships. The fate of thousands of people was decided by the news that arrived, or did not arrive, with the spring ship—the first ship that arrived after a long hard winter.

In 1915, total alcohol prohibition was enforced in Iceland. A multitude of farmers then started their secret operations all around the country, but none was as clever as Höskuldur Eyjólfsson. His homebrew was considered best to none and the authorities never managed to shut down his operation. When big gatherings were held, he had bottles buried all over the fields and then he told each client where his bottle was hidden. Once he went on a sales trip to a large sheep-gathering and hid many bottles under a cloth on his horse. He then joined the sheriff on the road to the gathering to avoid arousing any suspicion. All over the country, homebrew was referred to as “landi” country product but in the south region it was called “Höskuldur” in honour of this Robin Hood of the prohibition years.

Bjarni Herjólfsson lived here in the 10th century and occasionally sailed to Greenland. On one such voyage his ship was blown off course and Bjarni and his crew were the first west Europeans to sight the east coast of a continent that later came to be known as the New World. Bjarni told Leif Eiríksson his tale and sold him his ship. Leif followed Bjarni’s directions and discovered America in the year 1000, and named it Vinland. In 1968, at L’Anse aux Meadows in Newfoundland, ruins of houses were found that proved the old tale of Leif’s voyage and settlement in the New World.