Economic Progress

This is the effect of house prices on household borrowing

A view of the kitchen in a multi-million dollar home that was the spec renovation project of lender Jan Brzeski and developer Scott Ryan is seen in the Hollywood Hills area of Los Angeles, California August 5, 2013. Brzeski is a private money lender running an investment firm in Los Angeles that provides loans to house flippers, investors who buy a home, refurbish it, and sell it on at a profit. Many flippers go to money lenders because they can't get banks to provide such short-term, quick financing. Eighteen months ago Brzeski and his firm, Arixa Capital Advisors, were lending investor money to flippers on very different properties: $250,000 single family homes in southern California's up-and-coming low to middle class blue-collar neighborhoods. Most of the deals involved foreclosed homes that were totally refurbished, and then sold quickly. Brzeski now focuses on developers working on high-end flips of mansions and townhouses in exclusive neighborhoods, such as the Hollywood Hills and Bel Air. There has been a surge in high-end and luxury flipping nationwide. Between 2011 and today, flips of homes valued at $1 million or more have risen almost 40 percent across the United States, according to RealtyTrac, the housing data company. Picture taken August 5, 2013. To match Insight USA-HOMES/FLIPS      REUTERS/Jason Redmond (UNITED STATES - Tags: BUSINESS SOCIETY REAL ESTATE)

It is notoriously difficult to establish the causal relationship between house prices and borrowing. Image: REUTERS/Jason Redmond

James Cloyne
Associate Professor of Economics, University of California
Kilian Huber
Saieh Family Fellow in Macroeconomics, University of Chicago
Ethan Ilzetzki
Assistant Professor, London School of Economics
Henrik Kleven
Professor of Economics and Public Affairs, Princeton University
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