This post looks at how much an increase of 1 dollar in annual earnings has on the size of the real estate industry by percentiles of the income distribution. For example, at the 10th percentile of the wage distribution, a one dollar increase in annual wages leads to a $4.4 million increase in the size of the real estate industry in 2018. On the flip side, at the 90th percentile of the wage distribution, a one dollar increase in annual wages leads to a $535,500 increase in the size of the real estate industry. Therefore, the impact of one dollar at the 10th percentile is 8.26 times as much as the impact of one dollar at the 90th percentile.

Figure 1, below, documents the impact of wage percentiles on the size of the real estate industry and the economic impact of a typical home sale. Staying on the topic of the size of the real estate industry, Figure 1 shows that as wage percentiles grow, a 1 dollar increase translates into less and less impact on the size of the real estate industry.

A closer look shows that a 1 dollar increase at the 25th percentile leads to $2.5 million increase in the size of the real estate industry–down from $4.4 million at the 10th percentile. Also, a 1 dollar increase at the 50th percentile leads to a $1.1 million increase in the size of the real estate industry. Finally, a 1 dollar increase at the 75th percentile leads to a $701,000 increase in the size of the real estate industry. Remember that a 1 dollar increase at the 90th percentile leads to a $535,500 increase in the size of the real estate industry. Therefore, the impact of 1 dollar decreases as wage percentiles increase.

Turning next to the economic impact of a typical home sale, the story is very much the same. The economic impact of a typical home sale is measured by four components. The first is income generated from real estate industries, such as commissions, fees, and moving expenses. The second is expenditures related to home purchase, such as furniture and remodeling. The third is multiplier of housing related expenditures, which includes income generated from other sectors of the economy as a result of a home sale. The fourth is new home construction, which accounts for added home production as a result of additional home sales.

An increase of 1 dollar at the 10th percentile leads to a $9.38 increase in the economic impact of a typical home sale. On the opposite end, a 1 dollar increase at the 90th percentile leads to a $1.54 increase in the economic impact of a typical home sale. The impact of one dollar at the 10th percentile is 6 times as much as the impact of one dollar at the 90th percentile.

At the 25th percentile, a one dollar increase leads to a $7.43 increase in the economic impact of a typical home sale. At the 50th percentile, a one dollar increase leads to a $4 increase in the economic impact of a typical home sale. And, finally, a one dollar increase at the 75th percentile, leads to a $2.26 increase in the economic impact of a typical home sale. Again, the impact of one dollar decreases as wage percentiles increase.

The takeaway is that the impact of a dollar is different at different points in the wage distribution. This post documents that the impact of 1 dollar on the size of the real estate market decreases as wages increase. The interpretation, here, is that people in the lower tail of the wage distribution spend a greater percentage of their money on housing. Therefore, a one dollar increase has a greater impact on the housing market for the 10th percentile than the 90th percentile.

Figure 1.  Impact of Wage Percentiles on the Size of the Real Estate Industry and the Economic Impact of a Typical Home Sale
	10th Percentile Annual Wages (p-value)	25th Percentile Annual Wages (p-value)	Median Annual Wages (p-value)	75th Percentile Annual Wages (p-value)	90th Percentile Annual Wages (p-value)
Size of the Real Estate Industry 2018	$4,422,200.00	$2,487,100.00	$1,146,500.00	$701,000.00	$535,500.00
	(0.001)	(0.013)	(0.037)	(0.028)	(0.014)
Economic Impact of Typical Home Sale 2018	$9.38	$7.43	$4.04	$2.26	$1.54
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)

Source: https://www.nar.realtor/reports/state-by-state-economic-impact-of-real-estate-activity, https://data.bls.gov/oes/#/occGeo/One%20occupation%20for%20multiple%20geographical%20areas