If you can’t sell, you can’t move. Makes sense, right? Now some economists have proven that in a housing bust, people with negative equity in their homes are about 50% less likely to move than people with positive equity in their homes. The work is by Fernando Ferreira and Joseph Gyourko of Wharton and Joseph Tracy of the New York Fed. Here’s a quote from a digest of their paper by the National Bureau of Economic Research:
In a weak housing market, it seems, households get ‘locked in’ to their homes and are prevented from ‘moving up’ to larger homes and better neighborhoods.
That finding is not as obvious as it might seem. In fact, you could argue the opposite—that household mobility would actually increase in a housing bust because people have to move when they lose their houses to foreclosure. Some of that occurs, obviously, but it’s overwhelmed by the lock-in effect, the economists found.
Some other tidbits: Household mobility is higher if you’re divorced, or highly educated, or white, or a male-headed household, or very young, or very old, or have few children.
Decreased mobility tends to be a bad thing. It means people get stuck in weak labor markets. They may also do less maintenance and investment in their homes.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.