Financial Literacy Seminar Series

May 10, 2018

3:30 PM - 5:00 PM

Seminar IV | House Price Beliefs And Mortgage Leverage Choice

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Johannes Stroebel

Associate Professor, New York University Stern School of Business


The George Washington University
Science and Engineering Hall, B1270
800 22nd St NW

Bio: Johannes Stroebel

Johannes Stroebel is a faculty research fellow in the NBER’s Asset Pricing, Corporate Finance, and Economic Fluctuations and Growth programs, and an associate professor of finance at New York University’s Stern School of Business. He is also the director of the Household Finance program at NYU’s Salomon Center for the Study of Financial Institutions. Before joining NYU in 2013, he was the Neubauer Family Assistant Professor of Economics at Chicago Booth.

Stroebel conducts research across a number of topics in finance and macroeconomics, with a particular focus on understanding consumer and firm behavior in housing and credit markets. More generally, he enjoys analyzing large micro datasets.

In 2012, Stroebel earned a Ph.D. in economics from Stanford University, where he held the Bradley and Kohlhagen Fellowships at the Stanford Institute for Economic Policy Research. Before that, he read philosophy, politics and economics at Merton College, Oxford, where he won the Hicks and Webb Medley Prize for the best performance in economics.

A native of Darmstadt, Germany, Stroebel lives in New York City with his wife and one-year-old son, Konrad.


We study the relationship between homebuyers’ beliefs about future house price changes and their mortgage leverage choices. From a theoretical perspective, whether more pessimistic homebuyers choose more or less leverage is ambiguous and depends on their willingness to reduce the size of their housing investment. When households primarily maximize the levered return of their property investment, more pessimistic homebuyers reduce their leverage to purchase smaller houses. On the other hand, when considerations such as family size pin down the desired property size, pessimistic homebuyers reduce their financial exposure to the housing market by making smaller downpayments to buy similarly-sized homes. To determine which scenario better describes the data, we empirically investigate the cross-sectional relationship between beliefs and leverage choices in the U.S. housing market. Our data combine mortgage financing information and a housing market expectations survey with anonymized social network data from Facebook. The survey shows that an individual’s belief distribution about future house price changes is affected by the recent house price experiences of her geographically distant friends, allowing us to use these experiences as quasi-exogenous shifters of individuals’ house price beliefs. We find that more pessimistic homebuyers make smaller downpayments and choose higher leverage, in particular in states where default costs are relatively low, as well as during periods when house prices are expected to fall on average. Overall, our results provide evidence for an important role of heterogeneous beliefs in explaining individuals’ financial decision-making.