Regional Differential Wealth Effect on Home Value: A Cross-Sectional Analysis

ABSTRACTHome prices are regarded as an important determinant for consumption and considered to be a leading indicator for the economy. However, homebuyers' evolving preferences on new or existing characteristics can have different impacts on housing price for different homebuyers differently. Thus, regional home price differences may be due to differential effect in homebuyers' preference that is reliant on individuals' wealth barometer. In general, housing market in a region with higher median home values would also have a higher household income. This gives credence to the proposition that region with higher percentage of high income earners are instrumental for elevated home price. The unequal distribution of economic pulsation is in part dependent on the concentration of wealth that is different in different geographic locations. It is expected that housing prices are determined by income and therefore wealth, but it is not certain that there is a differential effect on home value due to different regions. Thus, the objective of this study is to understand the dynamic relationships of the wealth effect and regional effect on the home value. In particular, statistically significant relationship between home value and wealth factor dissimilarity due to locational differences are observed. Moreover, after controlling for population size and unemployment rate, wealth factor impacts the value of the house positively across the regions.(ProQuest: ... denotes formulae omitted.)INTRODUCTIONHousing market literature has presented a variety of housing characteristics to explain home value. Regression analysis is typically applied to identify the direction of the relationship between home value and these housing characteristics. Predicting home value can be daunting as homes in general contain countless physical attributes that influence their values and can include lot size, square footage, number of bedrooms, number of bathrooms, and other characteristics (Zietz, Zietz, & Sirmans, 2008). Popularity for this avenue of study has been highlighted by Sirman et al.'s (2005) review of studies that listed age of home and square footage to be the structural features frequently found to affect the selling price of a home. Amenities such as fireplaces, central air-conditioning, and patios were also found to influence home price positively. Neighborhoods' attributes both natural and manmade were also major components for home valuations. School districts, access to local parks and recreations have positive impacts on housing prices (Clark & Herrin, 2000; Downes & Zabel, 2002; Figlio & Lucas, 2004; Reback, 2005; Seo & Simons, 2009; Garcia, Montolio, & Raya, 2010). However, homebuyers' evolving preferences for particular characteristics continues and thus new or existing characteristics can have different impacts on housing price at different points in time and for different homebuyers differently (Malpezzi, 2003). As a result, home characteristic studies continue to be published to maintain a contemporary understanding of predictors' behavior on the home price. Other additions to the home value literature consider how differences in regional home price due to different geographic locations can create a differential effect in homebuyers' preference.Home prices are regarded as an important determinant for consumption (Case, Quigley, & Shiller, 2005) and considered a leading indicator for the health of the economy. This is a serviceable surrogate variable for understanding the immensity of consumerism in the U.S. because trends in home price are a simple tool to infer economic health by city, state, region, and country. Other types of buying decisions made by individual consumers are less desirable indicators because the data is more difficult to capture as choices are almost limitless in number and occur for anyone homeowner in a variety of locations. Moreover, frequent change in consumer buying trend makes buying behavior for most consumer goods an unreliable representation of economic health across different geographic regions and time periods. …