Your Facebook friends could be influencing you in ways you never realised. You’ve probably made a decision about which clothes to buy or which food to eat because of Facebook influence, but now a new study suggests that even the amount we’re willing to pay for a house could be linked to what appears in our news feeds.

The new working paper released by the US National Bureau of Economic Research found that people were willing to pay more for houses if they had friends on the social network who had experienced strong house price rises.

“Individuals whose friends experienced larger recent house price increases are more optimistic about property investments,” researchers Bailey, Cao, Kuchler and Stoebler wrote.

This research shows that housing price increases can become a self-fulfilling cycle, meaning that prices rise because people are talking about prices rising – regardless of separate factors such as land availability or interest rates.

Researchers from Harvard, New York University and Facebook put their heads together to work on this study, examining people in LA and their social networks.

We know what you’re thinking… most people’s friends live in the same city so of course they will all be subject to the same house price increases. Well, the study ignored these same-city friends and only looked at people who were “geographically distant” from each other.

Having a far-off friend in an area where house prices rose by 5% more than expected in the last two years means:

  • You’re 3.1% more likely to buy a house
  • You’ll buy a house that’s 1.7% larger
  • You’ll pay 3.3% more for that house

That’s compared to people whose friends don’t live in areas with such rapid price increases. Turns out you really do need to be selective about who you add to your friend list.

The study looked at a pretty large sample of “more than 520,000 housing transactions in Los Angeles county since 1993 to the Facebook account of the respective homebuyer”.

So what does this mean for Australia? Is it possible that house price growth is spreading from city to city because of what people believe from their social media news feeds?

Sydney and Melbourne hold the two largest populations in Australia, and it’s in these cities that price rises have been strongest. The majority of people probably have at least a handful of friends who live in those cities, and it’s no secret that they love to talk about house prices.

Add to this the fact that a large share of the country’s media is produced in Sydney and Melbourne (so journalists are surrounded by people experiencing house price rises), and the effect may be intensified.

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We can see from this graph that, despite a recent flat spot, Sydney is still well in the lead when it comes to the cost of housing.

The nation was quick to recover from a dip in prices in 2012. But with the mining boom coming to an end, things could be about to change again. Prices in Perth are already on the way back down.

Having prices below their peaks like this means more people will be making a loss when they sell their homes, so it follows that more people KNOW someone who has sold at a loss. Will we see this trend seeping through into our social media feeds, or are people not so quick to shout about making a loss on their investments?

If you’ve bought a house to live in long-term while you pay off your mortgage, then a dip in prices may not matter so much. But for those who have bought as an investment and have an interest-only mortgage, the direction of prices has a huge impact.

Worryingly, a massive 40% of loans in Australia are now interest-only. That’s a whole lot of people relying on a stable housing market.

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Let’s hope that people continue to give an honest account of house prices on Facebook – whether good or bad – so that the rest of us get a realistic picture of what the market is doing.