Social media has a profound impact on how we make our everyday decisions — from which detergent we’ll use to wash our clothes, the car we’ll purchase next or even what doctor we’ll choose for ourselves and our families. But how does social media influence one of the biggest decisions someone will make in a lifetime? New research sheds light on the effect of social networks on homeownership.

  • The National Bureau of Economic Research released "Social Networks and Housing Markets," a new study that analyzed how friends within a social network (Facebook) impact real estate purchasing decisions.
  • The study found that social networks do indeed have an influence. For example, individuals with friends who experienced a 5-percentage-point home price increase over the previous 24 months are more likely to transition from renting to owning.
  • The impact goes beyond the micro level and can cause house price shocks throughout the country.

Social media has a profound impact on how we make our everyday decisions — which detergent we’ll use to wash our clothes, the car we’ll purchase next or even what doctor we’ll choose for ourselves and our families.

But how does social media influence one of the biggest decisions someone will make in a lifetime?

Researchers Michael Bailey, Ruiqing Cao, Theresa Kuchler and Johannes Stroebel dug into this question in their National Bureau of Economic Research study “Social Networks and Housing Markets.”

The team observed the Facebook friendship networks of individuals in the U.S. and Canada and analyzed 1,242 responses for a housing market survey among Los Angeles-based Facebook users.

The survey asked respondents to provide information on how often they talk to friends about real estate investments and to rate the attractiveness of real estate investments in their ZIP code compared to other investments.

The researchers found a strong correlation “between the recent house price movements in counties where a respondent has friends, and whether that respondent believes that local property is a good investment.”

To solidify their findings, the team decided to examine how friends outside of the Los Angeles area impacted users’ purchasing decisions.

[Tweet “Whether someone believes that local property is a good investment is influenced by their FB friends.”]

The researchers gathered and combed through the social network data of all 1.4 million Los Angeles-based Facebook users and 525,000 housing transactions.

They also analyzed the effects of the house price experiences in an individual’s social network based on extensive margin decision (renting versus owning), the intensive margin decision (the size of properties bought), the willingness to pay for a particular property and the leverage chosen to finance the purchase.

The results showed that the correlation doesn’t weaken, and “that house price experiences within an individual’s social network have quantitatively large effects on all four aspects of his or her housing investment decision.”

What researchers learned about the Facebook effect

The results were broken down into four key findings. Individuals with social media friends who experienced a 5-percentage-point increase in home price over the previous 24 months were:

  • More likely (by 3.1 percentage points) to transition from renting to owning over a two-year period
  • Buying 1.7 percent larger homes
  • Paying 3.3 percent more for a given house
  • Making 7 percent larger down payments

[Tweet “Individuals with friends whose house price increased are more likely to become homeowners.”]

Conversely, if an individual’s friends experience negative (or less positive) price changes, they are more likely to become renters and sell their property at a lower price.

Social network homebuying shockwave

The researchers said the results can’t be explained through the “keeping up with the Joneses” lens that is so commonly seen in our consumer-driven culture.

The study shows the key findings persist even when they controlled for the level and change in trading volume within a person’s social network. Furthermore, the results are the same when they focused on the house price experiences of the subset of friends who are verified renters.

The researchers concluded that social networks do indeed influence individuals’ real estate purchasing decisions. And moreover, these influences often reach beyond the individual level to impact house price shocks throughout the country.

Want to read the full study? Request your copy here.

Email Marian McPherson.

Connect with me on Facebook!

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×