Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/309124 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 2024-15
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
We use a search and matching model to study the heterogeneous welfare effects of housing market illiquidity due to mortgage lock-in over the lifecycle. We find that younger home buyers are disproportionately affected by mortgage lock-in, which disrupts their typical pattern of moving to higher-quality neighborhoods. We estimate a model with heterogeneous seller-buyers bargaining within markets defined by CBSA-income terciles and with endogenous migration across markets. We find that on average mortgage lock-in reduces household listing probabilities by 21 percent to 23 percent, increases time on the market by 52 percent to 142 percent, increases house prices by 3 percent to 8 percent, and decreases match surplus by 3 percent to 29 percent through its effects on the search and matching process. The pricing and match surplus effects are larger for younger households and for households in lower-income areas, due to a higher idiosyncratic dispersion in buyer valuation leading to larger match surplus variation in those areas. Our study highlights the welfare benefits of market thickness in real estate markets.
Subjects: 
mortgage lock-in
moving to opportunity
housing market liquidity
idiosyncratic dispersion in house prices
FRMs
JEL: 
G18
G21
E52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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