Wednesday, October 29, 2008

The Housing Downturn and Mobility

In an earlier post I talked about the widespread nature of our current recession and how much different it would be from our previous two, which had very different regional impacts. One part of the story is that there are currently few good places to move. Another part is that high homeownership rates make people less likely to move. On this second point economists Fernando Ferreira, Joseph Gyourko, and Joseph Tracy examine one piece of the puzzle. The authors study what happens when homeowners end up with negative equity in their houses. The paper, “Housing Busts and Household Mobility,” is here. From the abstract:
Using two decades of American Housing Survey data from 1985 to 2005, we estimate the impact on household mobility of owners having negative equity in their homes and of rising mortgage interest rates.

We find that both lead to lower, not higher, mobility rates over time. The impacts are economically large, with mobility being almost 50 percent lower for owners with negative equity in their homes.

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