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Homeowner Mobility and Mortgage Interest Rates: New Evidence from the 1990s

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  • Quigley, John M.

Abstract

When 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 “lock in” 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.

Suggested Citation

  • Quigley, John M., 2002. "Homeowner Mobility and Mortgage Interest Rates: New Evidence from the 1990s," Berkeley Program on Housing and Urban Policy, Working Paper Series qt9192767g, Berkeley Program on Housing and Urban Policy.
    • Handle: RePEc:cdl:bphupl:qt9192767g
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    Cited by:

    1. Trond Husby & Henri L. F. de Groot & Marjan W. Hofkes & Tatiana Filatova, 2018. "Flood protection and endogenous sorting of households: the role of credit constraints," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 23(2), pages 147-168, February.
    2. Nicole M. Fortin & Andrew J. Hill & Jeff Huang, 2014. "Superstition In The Housing Market," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 974-993, July.
    3. 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.
    4. Ross M. Batzer & Jonah Coste & William M. Doerner & Michael J. Seiler, 2024. "The Lock-In Effect of Rising Mortgage Rates," FHFA Staff Working Papers 24-03, Federal Housing Finance Agency.
    5. Dickens William T. & Triest Robert K., 2012. "Potential Effects of the Great Recession on the U.S. Labor Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(3), pages 1-41, October.

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    Keywords

    Social and Behavioral Sciences;

    Statistics

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