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Mortgage rate lock-ins result in a $20 billion annual loss for the U.S. economy

At 9:30 AM on August 8, 2024 CDT, millions of homeowners across the United States are facing a significant economic challenge known as mortgage rate „lock-in.“ This phenomenon, where homeowners choose to stay in their current homes rather than take out new, more expensive mortgages, is having a detrimental impact on the US economy.

According to a recent working paper published by the National Bureau of Economic Research, the US economy suffered a $20 billion loss over a one-year period starting in 2022 due to mortgage rate lock-in. This translates to approximately $296 of economic cost per household, which the authors of the study refer to as „deadweight loss.“

The study compared homeowners with mortgages to those without, revealing that between the third quarter of 2022 and the second quarter of 2023, there would have been 800,000 more people moving to new homes if not for the effects of rate lock. This decrease in household mobility has significant economic consequences, as it hinders the free flow of workers to job opportunities.

Soaring mortgage rates from just over two years ago created strong disincentives for workers to move, as taking out new, larger mortgages would be financially burdensome. Coupled with higher home prices, this led to a decrease in household mobility, impacting both workers and employers.

Workers who are unable to move for better job opportunities may miss out on higher pay and career advancements, while employers may have to settle for less productive workers due to the unavailability of ideal candidates. This lack of mobility not only affects individual households but also has broader implications for the economy as a whole.

Previous research has also highlighted the effects of mortgage rate lock-in on household mobility. A working paper from 2023 estimated that a 1 percentage-point drop in the difference between current mortgage rates and locked-in rates reduced moving rates by 9%.

In conclusion, the issue of mortgage rate lock-in is a significant economic challenge that is impacting millions of homeowners and the US economy as a whole. Addressing this issue and finding solutions to encourage greater household mobility is crucial for ensuring a healthy and dynamic housing market and economy.

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