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The effect of LTV-based risk weights on house prices: Evidence from an Israeli macroprudential policy

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  • Laufer, Steven
  • Tzur-Ilan, Nitzan

Abstract

This paper studies the link between macroprudential regulation and house prices by asking whether policies that impose higher risk weights on high-LTV mortgages can slow house price growth. Studying a 2010 Israeli policy, we find that the prices on housing units likely to be purchased using mortgages subject to higher risk weights are reduced by about 2 1/2 percent. We find that the policy has larger effects in more expensive areas of the country and, in particular, in lower quality neighborhoods within these more expensive areas. Combining our results with estimates of the effect of this policy on mortgage interest rates, we derive an estimate for the semi-elasticity of house prices with respect to mortgage rates that is consistent with the upper range of estimates reported in the literature.

Suggested Citation

  • Laufer, Steven & Tzur-Ilan, Nitzan, 2021. "The effect of LTV-based risk weights on house prices: Evidence from an Israeli macroprudential policy," Journal of Urban Economics, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:juecon:v:124:y:2021:i:c:s0094119021000310
    DOI: 10.1016/j.jue.2021.103349
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    References listed on IDEAS

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    Cited by:

    1. Mokas, Dimitris & Giuliodori, Massimo, 2023. "Effects of LTV announcements in EU economies," Journal of International Money and Finance, Elsevier, vol. 133(C).
    2. Tsai, Pei-Hsuan & Wang, Ying-Wei & Chang, Wen-Chang, 2023. "Hybrid MADM-based study of key risk factors in house-for-pension reverse mortgage lending in Taiwan's banking industry," Socio-Economic Planning Sciences, Elsevier, vol. 86(C).
    3. Viral V. Acharya & Katharina Bergant & Matteo Crosignani & Tim Eisert & Fergal Mccann, 2022. "The Anatomy of the Transmission of Macroprudential Policies," Journal of Finance, American Finance Association, vol. 77(5), pages 2533-2575, October.
    4. Wilhelmsson, Mats, 2022. "What is the impact of macroprudential regulations on the Swedish housing market?," Journal of Housing Economics, Elsevier, vol. 57(C).
    5. Higgins, Brian E., 2024. "Mortgage borrowing limits and house prices: evidence from a policy change in Ireland," Working Paper Series 2909, European Central Bank.
    6. Damen, Sven & Schildermans, Stef, 2022. "Capital requirements, mortgage rates and house prices," Journal of Banking & Finance, Elsevier, vol. 143(C).

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    More about this item

    Keywords

    House prices; Macroprudential policy; LTV-Based risk weights; Mortgages;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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