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 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.