Leverage and House-Price Dynamics in U.S. Cities
Volume: Volume 30, No. 3
Issue: Autumn 1999
Pages: pp. 498-514
Authors: Owen Lamont and Jeremy C. Stein
Title: Leverage and House-Price Dynamics in U.S. Cities
Abstract: We use city-level data to analyze the relationship between homeowner borrowing patterns and house-price dynamics. Our principal finding is that in cities where a greater fraction of homeowners are highly leveraged-- i.e., have high loan-to-value ratios--house prices react more sensitively to city-specific shocks, such as changes in per-capita income. This finding is consistent with recent theories that emphasize the role of borrowing in shaping the behavior of asset prices.
JEL Classification
Housing Supply and Markets (R310)
Housing Economics including urban and nonurban housing (9320)