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Do Financial Constraints Cool a Housing Boom?

Author

Listed:
  • Lu Han

    () (Rotman School of Management, University of Toronto)

  • Chandler Lutz

    () (Department of Economics, Copenhagen Business School)

  • Benjamin Sand

    () (Department of Economics, York University)

  • Derek Stacey

    () (Department of Economics, Ryerson University)

Abstract

We study the housing market implications of financial constraints by exploiting a regulatory change that withholds access to mortgage insurance when homes sell for $1 million or more, effectively increasing the downpayment requirement at the threshold. We motivate our listing and sales price analysis by advancing a model of competing auctions with constrained bidders. Using Toronto data, we find sharp excess bunching for homes listed but not sold at $1M, along with changes to bidding intensity around the $1M threshold. Everything considered, our analysis points to the importance of designing macroprudential policies that recognize the strategic responses of market participants.

Suggested Citation

  • Lu Han & Chandler Lutz & Benjamin Sand & Derek Stacey, 2018. "Do Financial Constraints Cool a Housing Boom?," Working Papers 073, Ryerson University, Department of Economics.
  • Handle: RePEc:rye:wpaper:wp073
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    Cited by:

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    2. Nitzan Tzur-Ilan, 2018. "LTV Limits and Borrower Risk," Bank of Israel Working Papers 2018.12, Bank of Israel.
    3. Robert Clark & Shaoteng Li, 2020. "The strategic response of banks to macroprudential policies: Evidence from mortgage stress tests in Canada," Working Paper 1445, Economics Department, Queen's University.
    4. Gerth, Florian & Temnov, Grigory, 2021. "New Ways of Modeling Loan-to-Income Distributions and their Evolution in Time - A Probability Copula Approach," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 217-236.

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