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Leverage and House-Price Dynamics in U.S. Cities

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  • Owen Lamont
  • Jeremy C. Stein

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 where 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.

Suggested Citation

  • Owen Lamont & Jeremy C. Stein, 1999. "Leverage and House-Price Dynamics in U.S. Cities," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 498-514, Autumn.
    • Handle: RePEc:rje:randje:v:30:y:1999:i:autumn:p:498-514
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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • 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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