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

John M. Quigley ()

No 1043, Berkeley Program on Housing and Urban Policy, Working Paper Series from Berkeley Program on Housing and Urban Policy

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 pre-existing 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 who 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 which had been used previously to analyze the effects of high interest rates in 1979-82 upon homeowner mobility.

New Economics Papers: this item is included in nep-ure
Date: 2006-06-27
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