Mortgage Lock-In, Mobility, and Labor Reallocation

Abstract

We study the impact of rising mortgage rates on mobility and labor reallocation. Using individual-level credit record data and variation in the timing of mortgage origination, we show that a 1 p.p. decline in mortgage rate deltas (Δr), measured as the difference between the mortgage rate locked in at purchase and the current market rate, reduces moving rates by 0.68 p.p, or 9%. We find that this relationship is nonlinear: once Δr is high enough, households’ alternative of refinancing without moving becomes attractive enough that moving probabilities no longer depend on Δr. Lastly, we find that mortgage lock-in attenuates household responsiveness to shocks to nearby employment opportunities that require moving, measured as wage growth in counties within a 50 to 150-mile ring and instrumented with a shift-share instrument. The responsiveness of moving rates to wage growth is nearly three times as large for households who are less locked in (above-median Δr) than for those who are more locked in. We provide causal estimates of mortgage lock-in effects, highlighting unintended consequences of monetary tightening with long-term fixed-rate mortgages on mobility and labor markets.

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