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

Owen Lamont and Jeremy Stein ()

RAND Journal of Economics, 1999, vol. 30, issue 3, 498-514

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.

Date: 1999
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Working Paper: Leverage and House-Price Dynamics in U.S. Cities (1997) Downloads
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