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Household Mortgage Refinancing Decisions Are Neighbor Influenced

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  • W. Ben McCartney
  • Avni Shah

Abstract

Can social influence effects help explain regional heterogeneity in refinancing activity? Neighborhood social influence effects have been shown to affect publicly observable decisions, but their role in private decisions, like refinancing, remains unclear. Using precisely geolocated data and a nearest-neighbor research design, we find that households are 7% more likely to refinance if a neighbor within 50 meters has recently refinanced. Consistent with a word-of-mouth mechanism, social influence effects are weaker when neighbors are farther away and non existent for non-occupants. Our results illustrate the importance of the proximate community for household wealth accumulation and the transmission of monetary policy.

Suggested Citation

  • W. Ben McCartney & Avni Shah, 2021. "Household Mortgage Refinancing Decisions Are Neighbor Influenced," Working Papers 21-16, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:91247
    DOI: 10.21799/frbp.wp.2021.16
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    Cited by:

    1. Xiaoqing Zhou, 2022. "Financial Technology and the Transmission of Monetary Policy: The Role of Social Networks," Working Papers 2203, Federal Reserve Bank of Dallas, revised 14 Feb 2023.

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    More about this item

    Keywords

    Household Finance; Refinancing; Peer Effects; Neighborhoods;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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