Collateral Constraints, Wealth Effects, and Volatility: Evidence from Real Estate Markets

41 Pages Posted: 6 Oct 2016 Last revised: 8 Aug 2017

See all articles by Barney Hartman-Glaser

Barney Hartman-Glaser

University of California, Los Angeles (UCLA) - Anderson School of Management

William Mann

Emory University - Department of Finance

Date Written: January 16, 2017

Abstract

We find that housing return volatility is negatively correlated with income at the zip-code level. We rationalize this finding with a model featuring a collateral constraint that translates income volatility to housing return volatility. Collateral constraints are tighter for lower-income areas, causing higher housing return volatility. We validate this mechanism using variation in wealth induced by lagged housing returns, using cross-sectional data on the housing expenditure share, and using state-level non-recourse status to instrument for collateral constraints. Consistent with our model, housing return volatility is negatively correlated with lagged returns, positively correlated with expenditure share, and higher in non-recourse states.

Keywords: House prices, collateral constraints, volatility

JEL Classification: R31, G12, G30

Suggested Citation

Hartman-Glaser, Barney and Mann, William, Collateral Constraints, Wealth Effects, and Volatility: Evidence from Real Estate Markets (January 16, 2017). Available at SSRN: https://ssrn.com/abstract=2847186 or http://dx.doi.org/10.2139/ssrn.2847186

Barney Hartman-Glaser (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

William Mann

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
172
Abstract Views
1,253
rank
188,841
PlumX Metrics