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Wealth, Labor Income and House Prices

Author

Listed:
  • Yuming Li

    (California State University)

  • Laura Yue Liu

    (California State University)

Abstract

In this research, we compare the effect of aggregate U.S. financial wealth with the effect of aggregate U.S. labor income on house prices at the national and city levels. Financial wealth is measured by the net worth of U.S. households minus the equity of owners in home real estate or by the aggregate U.S. stock market index. After adjusting for the volatility of each explanatory variable, we find the economic impact of growth in financial wealth on the aggregate U.S. house price appreciation to be statistically significant and similar to that of labor income growth. We also find a significant wealth effect on some of the city-level house price appreciations. For the cities where both wealth and income effects are significant, the economic impacts of the two effects are found to be similar. While labor income growth has a contemporaneous effect on the house price appreciation, change in financial wealth, and in particular, the stock market, leads house price appreciation but not vice versa.

Suggested Citation

  • Yuming Li & Laura Yue Liu, 2014. "Wealth, Labor Income and House Prices," International Real Estate Review, Global Social Science Institute, vol. 17(3), pages 395-413.
    • Handle: RePEc:ire:issued:v:17:n:03:2014:p:395-413
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    References listed on IDEAS

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    1. Dennis R. Capozza & Yuming Li, 2001. "Residential Investment and Interest Rates: An Empirical Test of Land Development as a Real Option," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(3), pages 503-519, March.
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    More about this item

    Keywords

    Wealth Effect; House Price Appreciation;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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