Social Networks and Housing Markets

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Social Networks and Housing Markets AbstractWe 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 individuallevel 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.JEL-Codes: G120, D120, D140, D840, R210.Keywords: social networks, expectation formation, disagreement, house price dynamics. The past decades have seen large swings in U.S. house prices. Due to the role of these price movements in precipitating the Great Recession, there have been significant efforts by policy makers and researchers to better understand the drivers of house price dynamics. A prominent clas...

Conspicuous consumption and household indebtedness

“…Guiso, Sapienza, and Zingales (2013) provide evidence of social influence on households’ decisions to strategically default on their mortgages. Bailey, Ruiqing, Kuchler, and Stroebel (2016) document the importance of accounting for social networks to understand the home purchase decision. Agarwal et al.…”

Firms' Internal Networks and Local Economic Shocks

“…Second, our paper is related to a recent literature in macroeconomics that studies how shocks propagate throughout the economy. This literature has focused on input-output networks (e.g., , Acemoglu, Akcigit, and Kerr (2016), Barrot and Sauvagnat (2016)), financial networks (e.g., , Cabrales, Gale, and Gottardi (2015)), and social networks (Bailey et al (2016)).…”

“…Zillow house price data have been used in, e.g.,Keys et al (2014),Mian, Sufi, and Trebbi (2015),Giroud and Mueller (2016),Kaplan, Mitman, andViolante (2016), andBailey et al (2016).…”