Expert Commentary

Housing busts and household mobility: A 2012 update

2012 study from the Federal Reserve Bank and the University of Pennsylvania on how mortgage debt affects people's ability to move to new areas to seek opportunity.

Moving van (iStock)

Much research has been done on the recent boom and bust of the housing market in the United States, and housing’s impact on the labor market has been a topic of increasing interest among academics and policy makers.

A 2010 paper, “Housing Busts and Household Mobility,” from the Federal Reserve Bank of New York and University of Pennsylvania, examined the relationship between housing market and mobility by identifying three “financial frictions” that could diminish the ability of homeowners to move to new opportunities. First, if mortgage rates increase substantially enough to make new debt service payments unaffordable for homeowners, they may become less able to move. Second, if a housing policy is in place that would effectively put a large property tax on an individual who attempts to move, it may serve as a disincentive to mobility. The primary example the paper uses for such a policy is California’s Proposition 13. Finally, a household may be locked into a current property if the outstanding mortgage on the home is greater than its current value.

A 2012 follow-up study from the Federal Reserve Bank of New York and University of Pennsylvania’s Wharton School published in the Federal Reserve Bank of New York Policy Review, “Housing Busts and Household Mobility: An Update,” seeks to examine the role of these three “financial frictions” on household mobility. The study utilizes 1987-2007 and 2009 data from the U.S. Census Bureau’s American Housing Survey (AHS) to identify the effect of these three forces on the probability of a household moving permanently. The study is an update to the 2010 paper, though the authors’ model has been modified and AHS data from 2009 have been added.

Key findings include:

  • A household that possessed negative equity was one-third less likely to move than households with similar characteristics.
  • The study estimates that every additional $1,000 homeowners must pay towards its mortgage debt-service coverage results in a 12 percentage-point decrease in their likelihood to move.
  • Increases in property tax cost from California’s Proposition 13 — which are parallel to a $1,000 increase in debt service coverage — also resulted in a reduction of household mobility of 12%.
  • Between 1989 and 2009, 12.58% of moves were for job-related reasons as opposed to quality of life (26.7%), family (23.88%), financial (21.83%), or other reasons (11.84%).
  • Between 1985 and 1995, the majority of households who moved to a different state did so for job-related reasons (60.53%). Individuals who were moving for job related reasons were more likely to move across states than those leaving for quality of life (8.18%), family (10.22%), financial (4.25%), or other reasons (14.94%).
  • The authors suggest from the characteristics of local versus out-of-state movements “that financial frictions affecting household mobility may well be more likely to reduce local moves that need not have significant spillover effects into the labor market.”

Over all, the authors results suggest that the three financial frictions examined will result in decreased mobility in households. Furthermore, the authors state that they cannot accurately measure the effect of this decreased mobility on the labor market at this point.

Related research: A 2011 Queens University study, “Housing Liquidity, Mobility and the Labor Market,” finds that “the decision of home-owners to accept job offers from other cities depends on how quickly they can sell their houses.” As a result “home-owners accept job offers from other cities at a lower rate than do renters,” generating a relationship between “home-ownership unemployment both at the city-level and in the aggregate.” In addition, though economists have worried that mismatches between job openings and job seekers might help fuel unemployment trends, the evidence does not necessarily support a strong relationship, according to “The Mismatch between Job Openings and Job Seekers,” a 2011 paper from the Federal Reserve Bank of St. Louis.


Tags: financial crisis, consumer affairs

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