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Locked In: Mobility, Market Tightness, and House Prices

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Abstract

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 percent 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 percent and increased house prices by 8 percent. 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.

Suggested Citation

  • Aditya Aladangady & Jacob Krimmel & Tess C. Scharlemann, 2024. "Locked In: Mobility, Market Tightness, and House Prices," Finance and Economics Discussion Series 2024-088r1, Board of Governors of the Federal Reserve System (U.S.), revised 15 May 2025.
  • Handle: RePEc:fip:fedgfe:2024-88
    DOI: 10.17016/FEDS.2024.088r1
    Note: Revision
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    References listed on IDEAS

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    1. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
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    More about this item

    Keywords

    Mortgages and credit; Mobility; Housing demand; Rate lock; Housing supply;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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