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

Leverage and house-price dynamics in U.S. cities

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...

Relative House Price Dynamics across Euro Area and Us Cities Convergence or Divergence?

House Price Beliefs and Mortgage Leverage Choice∗

We study the effects of homebuyers’ beliefs about future house price changes on their mortgage leverage choice. We show that, from a theoretical perspective, the relationship between homebuyers’ beliefs and their leverage choice is ambiguous, and depends on the magnitude of a “collateral adjustment friction” that reduces homebuyers’ willingness to adjust their house size in response to beliefs ...

Understanding House-Price Dynamics

*The views expressed here are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. or most homeowners, housing is the single most important component of their nonpension wealth. Therefore, a change in house prices greatly affects the total wealth of many households. Furthermore, movements in house prices can af...

Leverage and Price Dynamics in the Housing Market

The paper presents a model of the housing market where sellers optimally post listing prices above their reservation value in the hope of landing a buyer with a higher valuation. The optimal listing price in the presence of fixed rate mortgage financing is shown to be increasing in the seller’s leverage. Thus, levered sellers post higher prices and wait longer to sell. Housing downturns increas...