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

Steven Laufer and Nitzan Tzur-Ilan

Journal of Urban Economics, 2021, vol. 124, issue C

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.

Keywords: House prices; Macroprudential policy; LTV-Based risk weights; Mortgages (search for similar items in EconPapers)
JEL-codes: G28 R31 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:124:y:2021:i:c:s0094119021000310

DOI: 10.1016/j.jue.2021.103349

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