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
Date Written: May 2, 2019
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: Suggested Citation