Abstract We study how financial constraints affect the housing market by exploiting a regulatory change that increases the down payment requirement for homes selling for $$$1M or more. Using Toronto data, we find that the policy causes excess bunching of homes listed at $$$1M and heightened bidding intensity for these homes, but only a muted response in sales. While difficult to reconcile in a frictionless market, these findings are consistent with the implications derived from an equilibrium search model with auctions and financial constraints. Our analysis points to the importance of designing macroprudential policies that recognize the strategic responses of market participants.