High Leverage and Willingness to Pay: Evidence from the Residential Housing Market

Itzhak Ben‐David
Authors registered in the RePEc Author Service: Itzhak Ben-David

Real Estate Economics, 2019, vol. 47, issue 3, 643-684

Abstract: I document a strong correlation between paying the full listing price on homes and borrowing 100% loan‐to‐value. Homebuyers who do both overpay by 2.8% to 3.9% ($4,800 to $6,700) and are 22.7% more likely to have their properties foreclosed within one year. The correlation is not mechanical: there is a discontinuity in the average leverage around the full listing price. The correlation is stronger in areas with a high fraction of financially constrained and unsophisticated residents, and in areas of high past price growth (potentially indicative of buyer optimism).

Date: 2019
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https://doi.org/10.1111/1540-6229.12234

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Working Paper: High Leverage and Willingness to Pay: Evidence from the Residential Housing Market (2011)
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