When people make life-altering financial decisions, they often turn to someone in their social network for guidance, even if that person doesn’t have much expertise.
Home values are skyrocketing, rising 5.9% in the most recent S&P/Case-Shiller index, hitting a 33-month high. Many renters are now itching to make an offer.
“People are influenced by their friends’ experiences,” says NYU finance professor Theresa Kuchler, one of the study’s co-authors. “People whose friends see house prices go up more are more optimistic about real estate and invest more in real estate.”
Kuchler notes that this phenomenon existed long before Facebook came around. “It is people’s friends in general — whether they interact online or offline — that have an effect on what people think about housing,” he said.
However, social networks like Facebook let people stay in touch more, especially over long distances.
The researchers found that if your friend’s home value increased by five percentage points — even if that friend lives in another city or state — you were 3.1% more likely to trade in your rental for a mortgage.
Friends of friends with ascending property values are also more likely to put a higher down payment on their home, buy a bigger house, and pay more for a property — again, even when they live in different cities.