NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Leverage and House-Price Dynamics in U.S. Cities

Owen Lamont, Jeremy C. Stein

NBER Working Paper No. 5961
Issued in March 1997
NBER Program(s):   CF

In this paper, 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 homeowners are more leveraged--i.e., have higher 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 which emphasize the role of collateralized borrowing in shaping the behavior of asset prices.

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Published: RAND Journal of Economics, Vol. 30, no. 3 (Autumn 1999): 498-514.

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