Housing Wealth and Overpayment: When Money Moves In

Abstract

We construct a novel dataset tracking households across property purchases covering 25 years of moves within the U.S. We find that information frictions in residential real estate markets cause movers with larger exogenous housing wealth to overpay for their next house, relative to both time varying local prices as well as time invariant characteristics of the property itself. These housing wealth driven overpayments are associated with larger positive price impacts to the surrounding neighborhood and are larger for local movers relative to non-local movers. The aggregate effect of housing wealth inflows is to increase commuting-zone-level house price growth.

Keywords: Household wealth, migration, real estate

JEL Classification: G51, D83, R31, D10