Leverage and house-price dynamics in US cities

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Publication Details

Output type: Journal article

Author list: Lamont O, Stein JC

Publisher: Wiley

Publication year: 1999

Journal: The RAND Journal of Economics (0741-6261)

Volume number: 30

Issue number: 3

Start page: 498

End page: 514

Number of pages: 17

ISSN: 0741-6261

eISSN: 1756-2171

Languages: English-Great Britain (EN-GB)

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Open access status: green

Full text URL: http://papers.nber.org/papers/w5961.pdf

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 were 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.

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