The Impact of Real Estate and Stock Market Fluctuations on Human Well-Being

Fluctuations of house and stock prices have an important effect on household wealth and, consequently, on household consumption patterns. Unfortunately, the recent literature has analyzed the determinants of human well-being and has shown that the relationship between consumption capabilities and happiness is not necessarily linear. In other words, higher income does not automatically imply higher well-being. In this paper I analyze the effects of real estate and stock market fluctuations on self-reported life-satisfaction levels of around 400,000 Western European citizens from 1975 to 2002. There are three main findings. First, both house and stock price increases have a positive effect on happiness. Second, real estate fluctuations are more important than stock market ones, both in relative and absolute terms. Third, when running regressions by age and income subgroups, the coefficients of the two financial variables are always non-negative. Furthermore, low income people are the most sensitive to both stock and house price increases while no big differences emerge among the reaction of different age cohorts. Thus, there does not seem to be room for social conflicts among age cohorts and income groups