Homeowner Mobility and Mortgage Interest Rates: New Evidence from the 1990s
AbstractWhen interest rates vary, the value to a homeowner of a mortgage at a fixed interest rate varies as well. In particular, if mortgages are not fully assumable, then when interest rates increase, the value of a preexisting mortgage contract increases as well. Thus, homeowners have an incentive to postpone moving in response to other economic incentives. Similarly, when interest rates decrease, households that had previously postponed moving now have this disincentive removed. The only empirical evidence on the magnitude of this effect is based upon the period of unusual volatility and increasing interest rates in the late 1970s. This paper investigates the importance of these mortgage contracts upon mobility during a more typical environment, the early 1990s, when much lower interest rates declined further. Thus, it investigates the implications for mobility of a decline in the â€œlock inâ€ effect of mortgage contracts. The paper uses the same data source and methodology that had been used previously to analyze the effects of high interest rates in 1979-1982 upon homeowner mobility.
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Bibliographic InfoPaper provided by Berkeley Program on Housing and Urban Policy in its series Berkeley Program on Housing and Urban Policy, Working Paper Series with number qt9192767g.
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- Gene Amromin & Jennifer Huang & Clemens Sialm, 2006.
"The Tradeoff Between Mortgage Prepayments and Tax-Deferred Retirement Savings,"
NBER Working Papers
12502, National Bureau of Economic Research, Inc.
- Gene Amromin & Jennifer Huang & Clemens Sialm, 2007. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," NBER Chapters, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 2014-2040 National Bureau of Economic Research, Inc.
- Amromin, Gene & Huang, Jennifer & Sialm, Clemens, 2007. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," Journal of Public Economics, Elsevier, vol. 91(10), pages 2014-2040, November.
- Eugene Amromin & Jennifer Huang & Clemens Sialm, 2006. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," Working Paper Series WP-06-05, Federal Reserve Bank of Chicago.
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