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.