NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Social Networks and Housing Markets

Michael Bailey, Ruiqing Cao, Theresa Kuchler, Johannes Stroebel

NBER Working Paper No. 22258
Issued in May 2016
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, Monetary Economics, Public Economics

We document that the recent house price experiences within an individual’s social network affect her perceptions of the attractiveness of property investments, and through this channel have large effects on her housing market activity. Our data combine anonymized social network information from Facebook with housing transaction data and a survey. We first show that in the survey, individuals whose geographically-distant friends experienced larger recent house price increases consider local property a more attractive investment, with bigger effects for individuals who regularly discuss such investments with their friends. Based on these findings, we introduce a new methodology to document large effects of housing market expectations on individual housing investment decisions and aggregate housing market outcomes. Our approach exploits plausibly-exogenous variation in the recent house price experiences of individuals’ geographically-distant friends as shifters of those individuals’ local housing market expectations. Individuals whose friends experienced a 5 percentage points larger house price increase over the previous 24 months (i) are 3.1 percentage points more likely to transition from renting to owning over a two-year period, (ii) buy a 1.7 percent larger house, (iii) pay 3.3 percent more for a given house, and (iv) make a 7% larger downpayment. Similarly, when homeowners’ friends experience less positive house price changes, these homeowners are more likely to become renters, and more likely to sell their property at a lower price. We also find that when individuals observe a higher dispersion of house price experiences across their friends, this has a negative effect on their housing investments. Finally, we show that these individual-level responses aggregate up to affect county-level house prices and trading volume. Our findings suggest that the house price experiences of geographically-distant friends might provide a valid instrument for local house price growth.

download in pdf format
   (4327 K)

email paper

A non-technical summary of this paper is available in the August 2016 NBER digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22258

Users who downloaded this paper also downloaded* these:
Bailey, Cao, Kuchler, Stroebel, and Wong w23608 Measuring Social Connectedness
Piazzesi and Schneider w22354 Housing and Macroeconomics
Mian and Sufi w22256 Who Bears the Cost of Recessions? The Role of House Prices and Household Debt
Fryer w22205 The 'Pupil' Factory: Specialization and the Production of Human Capital in Schools
Bayer, Mangum, and Roberts w22065 Speculative Fever: Investor Contagion in the Housing Bubble
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us