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Virtual Seminar | Mortgage Lock-in, Mobility, and Labor Reallocation
Wednesday, March 27, 2024, 11:00 AM - 12:15 PM EDT
Category: Events

Date: Wednesday March 27 at 11:00 AM Eastern Time

Speaker: Lu Liu (Wharton)

Paper Title: 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 (∆r), measured as the difference between the mortgage rate locked in at origination and the current market rate, reduces moving rates by 0.68 p.p, or 9%. We find that this relationship is non- linear: once ∆r is high enough, households’ alternative of refinancing without moving becomes attractive such that moving probabilities no longer depend on ∆r. 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. 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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Contact: Luis Eduardo Quintero | [email protected]