Mortgage Rates and Rents: Evidence from Local Mortgage Lock-In Effects

Abstract

Using new comprehensive micro-data covering the Los Angeles County rental market, we study how mortgage rates influence rents through spillovers from mortgage lock-in effects in the sales markets. A one-standard-deviation increase in average mortgage lock-in for homes within a narrow radius of a rental listing raises rents by 4.5% and shortens time-on-market. These estimates are not confounded by differences in property characteristics, sub-market trends, or migration. Instead, they are driven by spillovers from reduced sales volume and higher sales prices onto rents. Spillovers are stronger in lower-socioeconomic status areas and for multifamily buildings, determining divergent patterns in local rent inflation.

Keywords: Mortgage lock-in, Housing rents, Interest rates