The Response of Speculation in the Housing Market to Exogenous Shocks in Iran

The study of speculators' behavior is very important in explaining the phenomena of the Iranian housing market. Many of the unfavorable phenomena that occur in this market are the results of speculative activity in the housing market. Speculators enter the market at the beginning of the boom period and earn maximum profit of price increases, and as signs of recession appear, they quickly exit the market and invest in parallel markets such as banks, stocks, exchange and gold, which leads to fluctuations in housing prices. In this study, following the Roehner model and using the time varying parameter ordinary least squares method (TVP-OLS), the speculation index in the housing market during the period 1991 to 2020 was estimated, and then the impact of different shocks to stock market, exchange market, gold market, interest rates and housing tax on speculation in the housing market was investigated, and for estimating the effects of these shocks, the Markov-switching vector autoregressive (MSVAR) method was used. The results show that during the period under study, on average, 20% of the increase in housing prices was related to speculation, with the highest growth in 1997 at 320% and the lowest growth in 2005 at -23%. According to the results of the Markov-switching vector autoregressive model (MSVAR), speculation in the housing market had the highest response to the exchange and gold markets, and interest rates and the least response to the stock market and housing tax.