The dollar is holding back the housing market

According to Trade News, the sharp rise in prices Dollar In the first two months of this year, it was identified as an important obstacle in the way of returning housing prices to normal levels.

the world of economy He wrote that the price situation in the housing transaction market is always measured and evaluated with two internal and external real estate thermometers.

The external thermometer is related to the “dollar-housing price relationship” and the internal thermometer is related to the situation and the “ratio of housing prices to housing rents”.

Using these two thermometers, one from outside the real estate market and the other from inside the market, shows the status and level of the apartment price bubble, the distance between housing prices and the normal level is measured.

After a three-year period of leaps and bounds in 1400, following a drop in inflation expectations, the relative stability of the dollar price and the impact of the housing market on the event, the real estate market was in a phase of relative calm, but contrary to expectations, In the last two months of this year, the foreign exchange market has acted in the role of raising housing prices, making the path for prices to return to the normal level in the real estate market more complicated than before.

Return of the main actor

Following the currency shock in 1997 and under its influence, two important events took place in the housing market, which eventually manifested themselves in the form of housing price jumps.

The first is related to the increase in non-consumption demand and the entry of a significant amount of capital demand into the housing market under the influence of currency shocks created in order to protect the value of assets against inflation expectations.

After the currency shock of 1997, a significant number of risk-averse investors chose the real estate market as a safe haven to invest in order to protect the value of their assets against inflation.

On the other hand, following the inflationary effect of the rising dollar on the cost of housing, the housing market was affected by the sharp rise in the price of construction materials and equipment, especially foreign and imported materials.

These two events, under the influence of the dollar market and its impact on the housing market, led to the beginning of the real estate leap period and its continuation.

During the recent period of housing price jump, the dollar has always been one of the main players in the jump and the factor of raising the price level in this market.

In 1400, however, the dollar market was relatively stable due to a relative decline in inflation expectations and optimism for the future, recording a return of 60% over the course of a year.

Under the influence of these expectations and optimism, the housing market, like other markets, especially the dollar market, entered its back phase and the expectation for the price to return to the normal level with the dollar thermometer was strengthened.

Currency thermometers of the housing market showed that between 1996 (the year before the start of the real estate jump) to the beginning of 1400, housing prices were around 20 to 25 percent higher than normal, and with the dollar market entering a period of calm, prices were expected. Housing should also return to normal levels.

According to a traditional formula, with the exception of years of foreign exchange repression policy, the average price of a square meter of housing in Tehran is always estimated at around one thousand to one thousand and 100 dollars.

Using this formula, as well as market returns, it can be said that between 1996 and 1400, the average house price moved 20 to 25 percent higher than normal.

But while under the influence of the stabilization created in the foreign exchange market last year and also the entry of the housing market into its postwar period, it was expected to facilitate the return of housing prices to normal levels, during the first two months of this year, the dollar once again played the role of actor. The main and rising price of housing came into action.

In April of this year, a return of 60% and in May of this year, a return of 9.6% was recorded in the dollar market.

This growth rate, due to the relationship between the price of the dollar and housing, has prevented housing prices from returning to normal levels for the above reasons.

Calculations show that at the beginning of June this year, the average distance between housing prices and the normal level based on currency indicators and thermometers is 18%. This reduction in distance is not due to the return of housing prices, but to the sharp rise in the price of the dollar since the beginning of this year.

Solution to control the effect of inflation

The return of the housing market to the normal price level has become more complicated and difficult in the last two months as a result of the recurrence of the currency shock, and the policymaker must take immediate action by implementing effective policies in this field.

Adjusting the policy interest rate (increasing the interest rate on bank deposits), resolving non-economic risks and controlling the growth of liquidity can control the inflationary role of this external factor influencing the behavior of real estate market players by lowering the exchange rate and reversing the dollar price.