The Economic Importance of Neighbors: Evidence from Hyperlocal Social Influence Effects in Mortgage Markets

53 Pages Posted: 9 Dec 2016 Last revised: 7 May 2019

See all articles by W. Ben McCartney

W. Ben McCartney

Purdue University - Krannert School of Management; Duke University - Finance

Avni Shah

University of Toronto at Scarborough - Division of Management; University of Toronto - Rotman School of Management

Date Written: May 2, 2019

Abstract

We precisely geolocate more than one million mortgage choices and use a nearest-neighbor research design to find that households’ refinance, lender, and loan type choices are all socially influenced by their hyperlocal neighbors. Consistent with a word-of-mouth mechanism, households moving to new areas are not initially influenced by their block peers, but become so over time. Furthermore, non-occupant owners are significantly less influenced than owner-occupants. Finally, we show hyperlocal social influence effects help explain the rise of subprime lender use during the boom and optimal refinancing during the recovery. Our results illustrate the economic importance of neighborhoods for household finance.

Keywords: Household Finance, Mortgages, Peer Effects, Neighbors

JEL Classification: D12, D14, D71, G21, H31, R23

Suggested Citation

McCartney, W. Ben and Shah, Avni, The Economic Importance of Neighbors: Evidence from Hyperlocal Social Influence Effects in Mortgage Markets (May 2, 2019). Available at SSRN: https://ssrn.com/abstract=2882317 or http://dx.doi.org/10.2139/ssrn.2882317

W. Ben McCartney (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Duke University - Finance ( email )

Durham, NC 27708-0120
United States

HOME PAGE: http://duke.edu/~wbm5

Avni Shah

University of Toronto at Scarborough - Division of Management ( email )

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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