Do Conspicuous Consumers Pay Higher Housing Premiums? Spatial and Temporal Variation in the United States

Abstract

This study is the first to examine the relationship between conspicuous demand and housing price dynamics. We hypothesize that conspicuous consumers would want high‐end homes to signal their wealth and this housing consumption behavior would induce greater deviations from fundamental house prices. We test this by using a unique dataset that matches the consumers’ appetite for nonhousing luxury goods from Google Insights for Search to housing premiums that they pay for high‐end houses in U.S. Metropolitan Statistical Areas (MSAs) during 2004–2011. The estimation results demonstrate that controlling for a wide range of MSA demographic and economic characteristics, conspicuous demand has a significant, positive relationship with housing premiums. This relationship varies spatially and temporally. Conspicuous demand has a stronger relationship with a price increase in high‐end homes in MSAs with a steady, higher housing premium than in MSAs with a volatile, lower premium during the boom period. In MSAs with a steady, higher housing premium, the relationship remains significant even during the bust period, potentially contributing to maintaining higher housing premiums.

Internet Search Behavior, Liquidity and Prices in the Housing Market

“…For example, Wu and Deng () use internet search data from Google to detect information flows regarding price discovery from larger cities to smaller cities. Lee and Mori () employ data from Google Insights to examine housing premiums for luxury homes based on consumers' preferences for nonhousing luxury goods. Finally, Wu and Brynjolfsson () use internet search data to forecast transactions and price developments in the housing market.…”

Veblen goods and urban distinction: The economic geography of conspicuous consumption

“…This type of behavior is particularly pronounced in conspicuous goods consumption, which reshapes community identification (Bertrand & Morse, ; Charles & Lundy, ; De Giorgi, Frederiksen, & Pistaferri, ; Frank, Levine, & Dijk, ). Recent work suggests that conspicuous consumption affects real estate prices, which will ultimately influence mobility and distribution of workers (Lee & Mori, ; Zahirovic‐Herbert & Chatterjee, ). Currid‐Halkett (, ) found that metro areas engage in significantly different consumer behavior, particularly around status goods and argued that these differences help explain distinctions in urban identity.…”

“…In doing so, this study will be the first to focus on the consumption of two classes of luxury goods that might be differentially affected by a metropolitan areas attributes. The study suggests that conspicuous consumption affects real estate prices, which will ultimately influence mobility and distribution of workers (Lee & Mori, 2016;Zahirovic-Herbert & Chatterjee, 2011). Currid-Halkett (2014 found that metro areas engage in significantly different consumer behavior, particularly around status goods and argued that these differences help explain distinctions in urban identity.…”

Reflected Glory Versus Repulsive Envy: How Do the Smiths Feel About the House of the Joneses?*

“…In another study extending the above model, Leguizamon and Ross () compare individuals′ absolute and relative housing consumption and find that both changes in relative and absolute house sizes have a positive impact on house values but changes in absolute house sizes create a higher premium than their relative status, possibly indicating nonlinear patterns in the effects. In a recent work, Lee and Mori () examine conspicuous consumption using US Metropolitan Statistical Area (MSA) data over 2004–2011 and their findings indicate that conspicuous demand has a significant, positive relationship with housing premiums after controlling for a wide range of MSA demographic and economic characteristics. However, across‐MSA information may mask a significant part of heterogeneous decision‐making processes that occur within close distances, across different districts or neighborhoods.…”