The Effects of Liquidity on Housing Price Fluctuations in Oil-Producing Countries VS. other Countries

The Housing market has experienced fluctuations in recent years. The main factors for the soaring prices of houses are demand and speculative swings, originating from the structural problems of macro economy as well as galloping liquidity increase and incapability of other economic sectors and the capital market to absorb this liquidity. This paper studies the effects of liquidity on house price swings in Iran and 20 OECD countries which have experienced more house price fluctuations in recent decades. The estimates have been done for the years 1980 to 2009 by applying panel data method. The estimations for all selected countries were carried out first, and then the countries were divided into two groups: countries with oil revenues and countries without oil revenues. Results indicate that in both groups the liquidity has meaningful and positive effects on house prices, so considerable part of the house price volatilities can be explained by the liquidity which exists in the sector. Oil revenues play a meaningful and positive role in house price swings in oil producing countries, exerting an extra 36% of direct or indirect fluctuations, comparing the other group.