Leverage and House-Price Dynamics in U.S. Cities
Working Paper 5961
DOI 10.3386/w5961
Issue Date
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 Versions
RAND Journal of Economics, Vol. 30, no. 3 (Autumn 1999): 498-514. citation courtesy of