Estimates from the Boston condominium market show that owners with high loan-to-value ratios take longer to sell their properties than owners with low loan-to-value ratios. When sold, properties with high loan-to-value ratios receive a higher price than units with less debt. Both of these results are consistent with a search model in which owners "constrained" by large amounts of debt set a higher reservation price than "unconstrained" owners, accepting a lower probability of sale in exchange for a higher final sales price, and thus lend credibility to theoretical models that establish a link between sales volume and prices through changes in the equity of existing homeowners.
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Publisher Info
Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number
93-6.
Length: Date of creation: 1993 Date of revision: Publication status: Published in American Economic Review 87, no. 3 (June 1997): 255-69. Handle: RePEc:fip:fedbwp:93-6
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