Regional Differences in House Prices and Debt

Abstract

House prices and household debt are closely linked. Both house prices and household debt have been rising faster than household income for a longer period. In order to assess household vulnerabilities, debt relative to both income and the value of the dwelling are relevant variables. The analysis is based on data for publically registered housing transactions linked with tax records for household income and debt in order to shed light on regional differences in house prices and homebuyers’ debt. We find that for households that purchased a dwelling in 2014, debt relative to total income was higher than for homebuyers in 2009. This suggests that homebuyers have become more vulnerable to interest rate increases and a loss of income. The total debt to income ratio was highest for homebuyers in urban areas, reflecting the fact that house prices relative to income are highest in urban areas. At the same time, debt relative to the price of the dwelling is lower in urban areas than elsewhere in the country, and this ratio fell between 2009 and 2014.