Theories of rational redlining suggest a low housing sales volume should lead to greater uncertainty in house price appraisals, making the mortgage loan riskier, less attractive to lenders, and consequently more likely to be denied or charged a higher price. Previous empirical tests of this...

Theories of rational redlining suggest thinness in housing markets should lead to greater uncertainty in house price appraisals, increasing mortgage denial rates or pricing. Empirical tests found support for this theory in mortgage underwriting using 1990s data. Using 2006 data and bank-specific...