Becoming a homeowner or investing in a real estate property is one of the most important personal and financial decisions a person will make in his lifetime. In a world when social media and the increasing access to the internet are affecting every aspect of life, how does one’s social network affect the decision to purchase a property?
At a REALTOR® University Speaker Series held recently, Dr. Johannes Stroebel presented research that found that one’s social network of friends has an impact on a person’s decision to purchase property. The process works this way: price changes occurring within the geographical area of an individual’s social network impact his/her perception of the attractiveness of property investments as well as actual decisions to purchase real estate.
To listen to the presentation, click Video). To download the study, click here.
The research looked at Facebook users who lived in Los Angeles and analyzed how the home price experience of their social network of friends who lived in other geographic areas affected their home purchase decisions. The research found that housing investment is regularly a topic of discussion with the social network. According to the study, about half of the respondents discussed (sometimes or often) whether buying a house is a good investment.
The study found that an increase in the home price experience of an individual’s social network (“friends”) who reside in other geographic areas:
- increased the chances of the individual becoming a homeowner;
- increased the size of the property the individual purchased; and
- increased the individual’s purchase price;
An implication of the study is that an individual whose social network (friends) live in geographic areas where prices are increasing is more likely to purchase a home than an individual whose social network is experiencing greater price variability (some increasing, some decreasing). The effect is larger for individuals who regularly talk to their friends about investing in property. In this regard, social networks can amplify housing upturns and downturns, if home prices are moving in the same direction in many geographic areas.
What This Means to REALTORS®:REALTORS® are increasingly using social media, and this active social media presence can potentially create more business opportunities, as individuals become more aware of housing trends in their areas and discuss these trends with their social network friends. According to the 2016 Member Profile, 70 percent use social media, 54 percent reported having a website for five years, and 11 percent have a real estate blog.
About the Speaker
Dr. Johannes Stroebel is Associate Professor of Finance, New York University Stern School of Business. He is also affiliated with the National Bureau of Economic Research, CESifo (Germany-based), and the Center for Economic Policy Research (U.K.-based). His research on asymmetric information in the housing market, housing bubbles, the regulation of consumer financial products, and the impact of climate change on housing has been published in journals such as the Journal of Finance, the Quarterly Journal of Economics, and Econometrica, among others.
To contact the speaker, please email firstname.lastname@example.org.
REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.
 Held on January 27, 2017 at the NAR Washington D.C. Office
 The research is a collaboration of economists Michael C. Bailey (Facebook), Ruiqing Cao (Harvard University), Theresa Kuchler (NYU), and Johannes Stroebel (NYU, NBER, CPER).
 Thanks to Meredith Dunn, Communications Manager, for creating the webinar material.
 The survey data had 1,242 survey responses, 55% male. The respondents’ age ranges between 19 and 75 years, with an average of 46 years, Respondents are spread over 113 Los Angeles zip codes, but 24% (40%) of them live in the 10 (20) most represented zip codes. On average, the Facebook users in the sample data had 420+ friendship links, and even those in the 25th percentile had 117 links.
 The authors measure home price experience of an individual’s social network as the sum of the share of the individual’s network N who live in county c multiplied by the price changes in county c between December 2008 and December 2010.