Working Paper

Household Mortgage Refinancing Decisions Are Neighbor Influenced

Abstract: Can social influence effects help explain regional heterogeneity in refinancing activity? Neighborhood social influence effects have been shown to affect publicly observable decisions, but their role in private decisions, like refinancing, remains unclear. Using precisely geolocated data and a nearest-neighbor research design, we find that households are 7% more likely to refinance if a neighbor within 50 meters has recently refinanced. Consistent with a word-of-mouth mechanism, social influence effects are weaker when neighbors are farther away and non existent for non-occupants. Our results illustrate the importance of the proximate community for household wealth accumulation and the transmission of monetary policy.

Keywords: Household Finance; Refinancing; Peer Effects; Neighborhoods;

JEL Classification: D12; D14; D71; H31; R23;

https://doi.org/10.21799/frbp.wp.2021.16

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2021-04-30

Number: 21-16