Leverage and House-Price Dynamics in U.S. Cities
NBER Working Paper No. 5961
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.
Published: RAND Journal of Economics, Vol. 30, no. 3 (Autumn 1999): 498-514.