Do Financial Constraints Cool a Housing Boom?
Lu Han (),
Chandler Lutz (),
Benjamin Sand () and
Derek Stacey ()
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Lu Han: Rotman School of Management, University of Toronto
Chandler Lutz: Department of Economics, Copenhagen Business School
No 73, Working Papers from Ryerson University, Department of Economics
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.
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