scorecard
  1. Home
  2. life
  3. news
  4. The mortgage lock-in effect shaved $20 billion off the US economy in a year

The mortgage lock-in effect shaved $20 billion off the US economy in a year

Jennifer Sor   

The mortgage lock-in effect shaved $20 billion off the US economy in a year
  • The housing market's lock-in effect cost the US economy $20 billion last year.
  • High mortgage rates led to economic stagnation and reduced housing activity.

High mortgage rates cost the US economy billions of dollars last year.

A new National Bureau of Economic Research paper from economists Jack Liebersohn and Jesse Rothstein examined the burden of high borrowing costs on prospective home buyers.

High rates have discouraged existing homeowners from moving over the last few years, as many are clinging to ultra-low rates they secured years ago. That dynamic, known as the "lock-in" effect, was particularly acute in 2022 and 2023, the researchers said, when rates were hovering at a multi-decade high.

Higher mortgage rates led to a 1.2 percentage point increase in Americans who didn't move, but would have that year, had they not been held back by high borrowing costs, Liebersohn and Rothstein estimated.

"This implies a deadweight loss of about $296 per household in from 2022q3-2023q2, the last year of the sample. In aggregate, these losses amount to around $20bn in that year," the working paper said.

Households that did move were also weighed down by higher mortgage rates. Altogether, Americans who moved between 2022 and 2023 paid an extra $21 billion per month in mortgage payments, the researchers estimated, amounting to $215 billion in extra costs through the entire period.

High mortgage rates have stalled activity in the housing market since 2022, after interest rate hikes from the Fed influenced mortgage rates to rise to multi-decade highs.

Rates have since cooled from their peak in late 2023, but borrowing costs remain elevated overall, with the 30-year fixed rate clocking in at 6.7% the past week, according to Freddie Mac data.

Housing demand, meanwhile, remains anemic, despite expectations for rates to continue easing through the rest of the year. Existing home sales dropped another 5.4% year-over-year in June, according to the National Association of Realtors. That's a mild decline compared to what was recorded in June of last year when existing home sales plunged 19.3% on a yearly basis.



Popular Right Now



Advertisement