American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
Financial Constraints and Inflated Home Prices during the Real Estate Boom
American Economic Journal: Applied Economics
vol. 3,
no. 3, July 2011
(pp. 55–87)
Abstract
During the housing boom, financially constrained home buyers artificially inflated transaction prices in order to draw larger mortgages. Using transaction data from Illinois that includes sellers' offers to inflate prices, I estimate that in 2005-2008, up to 16 percent of highly leveraged transactions had inflated prices of up to 9 percent. Inflated transactions were common in low-income neighborhoods and when intermediaries had a greater stake or an informational advantage. Borrowers who inflated prices were more likely to default, but their mortgage rates were not materially higher. Property prices in areas with a high rate of past price inflation exhibited momentum and high volatility. (JEL D14, E31, R31)Citation
Ben-David, Itzhak. 2011. "Financial Constraints and Inflated Home Prices during the Real Estate Boom." American Economic Journal: Applied Economics, 3 (3): 55–87. DOI: 10.1257/app.3.3.55Additional Materials
JEL Classification
- D14 Personal Finance
- E31 Price Level; Inflation; Deflation
- R31 Housing Supply and Markets
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