Locked In: Mobility, Market Tightness, and House Prices

Rising interest rates in 2022 significantly increased moving costs for homeowners with low fixed-rate mortgages, leading to a sharp drop in mobility. After accounting for biases from selective refinancing, we find mortgage rate “lock in” – the decline in moves due to the rising gap between market rates and homeowners’ fixed rates – explains 44% of the drop in mortgage borrower mobility from 2021 to 2022. This effect primarily reflects fewer local moves, with only modest impacts on moves across labor market areas. Consistent with a housing search model, we show that under certain conditions, lock-in tightens markets, driving up house prices – an effect that increases with a market’s initial tightness. The model also implies the effect of lock-in grows non-linearly in shock size. We estimate the 2022 lock-in shock reduced time on market by 29% and increased house prices by 8%. However, these effects were entirely due to historically tight initial housing market conditions. We show that in a more balanced housing market as in 2019, the same lock-in shock would have had little to no impact on prices or tightness.