the effective ltv for many homeowners. only the most recent, and the most highly leveraged, home purchasers have high ltvs. highly leveraged home purchasers tend to use so - called piggyback mortgages ; that is, second liens originated at the time of purchase. these loans are popular, in significant part, because they avoid the non - deductible private mortgage insurance payments required on larger, single loans. if piggyback loans are more common in states in which house price appreciation has been particularly rapid over the past five years, one might worry that homebuyers are especially exposed to reversals in house prices. however, data collected for 4 / 5 2004, the first year of coverage in hmda, show that the use of piggyback loans was not particularly correlated with strong appreciation of prices. among mortgages tracked by hmda, piggyback loan use was particularly high in texas, california, utah, oregon, and colorado. the presence of california on this list is probably no surprise, but home prices in the other four states have not grown particularly rapidly. of course, the hmda data do not track mortgages made by all institutions or open - ended loans such as home equity lines of credit ( helocs ). anecdotal reports suggest that some homebuyers are using helocs as piggyback mortgages, and so we probably do not have a full accounting of all mortgage debt. nonetheless, combining the newly available data on piggybacks from hmda with other information, we can construct a reasonably comprehensive measure of the degree of leverage of mortgages used to purchase homes, by state, in 2004. these estimated ltvs are highest in states that have experienced relatively little house price appreciation, and lowest in states in which prices have appreciated the most, such as california and massachusetts. the main reason for this negative relationship is likely that most people buying a home in california are probably also selling a home in california and using at least part of their accumulated home equity capital gains as a down payment on their new house. apparently, many households are forgoing some consumption to lower their new mortgage balances. in summary, it is encouraging to find that, despite the rapid growth of mortgage debt, only a small fraction of households across the country have loan - to - value ratios greater than 90 percent. thus, the vast majority of homeowners have a sizable equity cushion with which to absorb a potential

and the possible future path of home prices. although we do not have comprehensive data on the split between sales to owner - occupants and those to purchasers of second homes, especially investors, enough data are available to draw some conclusions, however tentative. as i noted earlier, we can have little doubt that the exceptionally low level of home mortgage interest rates has been a major driver of the recent surge of homebuilding and home turnover and the steep climb in home prices. indeed, home prices have been rising sharply in many countries around the world. in the united states, signs of froth have clearly emerged in some local markets where home prices seem to have risen to unsustainable levels. it is still too early to judge whether the froth will become evident on a widening geographic scale, or whether recent indications of some easing of speculative pressures signal the onset of a moderating trend. the housing market in the united states is quite heterogeneous, and it does not facilitate the easy diffusion of local excesses. instead, we have a collection of local markets only loosely connected by such factors as mortgage interest rates and, over the longer term, migration and construction capacity. as a consequence, the behavior of home prices varies widely across the nation. speculation in homes is also largely local, especially for owner - occupied residences. for homeowners to realize accumulated capital gains on a residence - - a precondition of a speculative market - - they must move. another formidable barrier to speculative activity is that home sales involve significant commissions, taxes, points, and other fees, which average in 3 / 5 the neighborhood of 9 percent of the sales price. where sales by owner - occupants predominate, speculative turnover of homes is difficult. but in recent years, the pace of turnover of existing homes has quickened. apparently, a substantial part of the acceleration in turnover reflects the purchase of second homes - mainly for investment or vacation purposes. according to data collected under the home mortgage disclosure act ( hmda ), mortgage originations for second - home purchases rose from 7 percent of total purchase originations in 2000 to twice that at the end of last year. anecdotal evidence suggests that the share may currently be even higher. because down payments on second homes appear to be larger, on average, than they are on homes bought for owner occupancy, and because a larger share of second homes appear to be paid for wholly in cash, second homes presumably represent a larger fraction of total purchases