Housing is one of the most fundamental needs of households and constitutes a significant share of gross fixed capital formation in the national economy. Therefore, an accurate analysis of housing market dynamics and a proper identification of macroeconomic factors affecting it—particularly within a framework capable of explaining non-equilibrium and bubble-like price behavior—is of great importance. Given the spatial nature of housing and the potential existence of spatial dependence and interactions among different regions, ignoring this characteristic may lead to incomplete and misleading conclusions in housing market analysis. This study aims to examine housing price bubbles in Iran and analyze their spatial diffusion patterns using a spatial lag model and panel data for 15 provinces over the period 2000–2023. In addition to macroeconomic variables and fundamental demand-side factors, spatial spillover effects of housing price bubbles are explicitly incorporated into the spatial econometric framework. The estimation results indicate that the spatial lag coefficient (ρ) is positive and statistically significant, confirming the existence of spatial diffusion effects of housing price bubbles across provinces. On average, a 10 percent increase in housing price bubbles in other provinces leads to approximately a 9 percent increase in the housing price bubble in the province under consideration. This finding highlights the crucial role of spatial interactions in explaining housing price bubble behavior in Iran. Moreover, the results show that GDP growth, liquidity, and the number of households have positive and statistically significant effects on housing price bubbles, consistent with theoretical expectations. Overall, the findings suggest that analyzing housing price bubbles in Iran requires a spatially oriented approach that goes beyond administrative boundaries. Ignoring spatial spillover effects may undermine the effectiveness of housing market regulation policies. This paper is derived from the Master’s thesis of Ms. Azam Najafi Shalamzari at the Art University of Isfahan.