A recent study by the Federal Reserve Bank of New York reexamines the impact that three financial frictions—negative equity, mortgage interest rate lock-in and property tax lock-in—have on household mobility.
The study, “Housing Busts and Household Mobility: An Update,” supplements and confirms the authors’ 2010 research, which found that negative home equity reduces household mobility by 30 percent, while an additional $1,000 of mortgage or property tax costs lowers mobility by 10 to 16 percent. This new analysis incorporates more recent American Housing Survey data, and utilizes an improved measure of mobility to reflect permanent—and not temporary—moves.
The study, by Joseph Tracy, Fernando Ferreira and Joseph Gyourko, also explains that reduced homeowner mobility may not have a significant impact on the unemployment rate. However, reduced mobility due to financial frictions does have economic and social effects beyond its possible ramification for labor markets. Locked-in homeowners are more likely to be stuck in wrong-sized houses or in the wrong location. For example, negative equity could prevent a family from moving to a preferred school district, even if there is no desire to change jobs.
Joseph Tracy is an executive vice president and senior advisor to the Bank President at the New York Fed; Fernando Ferreira is an associate professor at the University of Pennsylvania; Joseph Gyourko is a professor at the University of Pennsylvania. Their study can be read in full in the latest Economic Policy Review.
Housing Busts and Household Mobility: An Update »