Leverage and House-price Dynamics Under the Recourse-Loan System in Japanese Prefecures

We use Japanese prefectural-level data to analyze the relationship between borrowing patterns and house price dynamics under the recourse-loan system. Our principal finding is that in prefectures where highly leveraged homeowners are common– i.e. have high, extended loan-to-value ratios- house prices respond less to prefecture-specific shocks, such as changes in per-capita income. This finding based on the recourse-loan system is quite different from the finding under the non-recourse loan system, because under the recourse-loan system, the lock-in effect stemming from severe equity constraints is much more severe