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Housing busts and household mobility: an update

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  • Fernando Ferreira
  • Joseph Gyourko
  • Joseph Tracy

Abstract

Interest in the relationship between household mobility and financial frictions, especially frictions associated with negative home equity, has grown following the recent boom and bust in U.S. housing markets. With prices falling 30 percent nationally, negative equity greatly expanded across many markets. More recently, the decline in mortgage rates along with various policy interventions to encourage refinancing at historically low rates suggests the need to also revisit mortgage interest rate lock-in effects, which are likely to become important once Federal Reserve interest rate policy normalizes. In this article, the authors update their estimates (from Ferreira, Gyourko, and Tracy [2010]) of the impact of three financial frictions—negative equity, mortgage interest rate lock-in, and property tax lock-in—on household mobility. By adding 2009 American Housing Survey (AHS) data to their sample, the authors incorporate the effect of more recent house price declines. They also create an improved measure of permanent moves in response to Schulhofer-Wohl’s (2011) critique of their earlier work. The authors’ updated estimates corroborate their previous results: Negative equity reduces household mobility by 30 percent, and $1,000 of additional mortgage or property tax costs lowers mobility by 10 to 16 percent. Schulhofer-Wohl’s finding of a zero or a slight positive correlation between mobility and negative equity appears to be due to a large fraction of false positives, as his coding methodology tends to misclassify almost half of the additional moves it identifies relative to the authors’ measure of permanent moves. This also makes his mobility measure dynamically inconsistent, as many transitions originally classified as a move are reclassified as a nonmove when additional AHS data become available. The article concludes by suggesting directions for future research, including potential improvements to measures of household mobility.

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Bibliographic Info

Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (2012)
Issue (Month): Nov ()
Pages: 1-15

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Handle: RePEc:fip:fednep:y:2012:i:nov:p:1-15:n:v.18no.3

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Keywords: Mortgages ; Property tax ; Equity ; Interest rates ; Labor mobility;

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References

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  1. Quigley, John M, 1987. "Interest Rate Variations, Mortgage Prepayments and Household Mobility," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 636-43, November.
  2. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," NBER Working Papers 13236, National Bureau of Economic Research, Inc.
  3. Ferreira, Fernando, 2010. "You can take it with you: Proposition 13 tax benefits, residential mobility, and willingness to pay for housing amenities," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 661-673, October.
  4. Hanushek, Eric A. & Quigley, John M., 1979. "The dynamics of the housing market: A stock adjustment model of housing consumption," Journal of Urban Economics, Elsevier, vol. 6(1), pages 90-111, January.
  5. Nada Wasi & Michelle J. White, 2005. "Property Tax Limitations and Mobility: The Lock-in Effect of California's Proposition 13," NBER Working Papers 11108, National Bureau of Economic Research, Inc.
  6. Stein, Jeremy C, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 379-406, May.
  7. Schulhofer-Wohl, Sam, 2012. "Negative equity does not reduce homeowners’ mobility," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Feb, pages 1-17.
  8. Engelhardt, Gary V., 2003. "Nominal loss aversion, housing equity constraints, and household mobility: evidence from the United States," Journal of Urban Economics, Elsevier, vol. 53(1), pages 171-195, January.
  9. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2008. "Housing busts and household mobility," Staff Reports 350, Federal Reserve Bank of New York.
  10. Quigley, John M., 2006. "Urban Economics," Berkeley Program on Housing and Urban Policy, Working Paper Series qt0jr0p2tk, Berkeley Program on Housing and Urban Policy.
  11. Alan Krueger & Orley Ashenfelter, 1992. "Estimates of the Economic Return to Schooling from a New Sample of Twins," NBER Working Papers 4143, National Bureau of Economic Research, Inc.
  12. Daniel Aaronson & Jonathan Davis, 2011. "How much has house lock affected labor mobility and the unemployment rate?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Sep.
  13. Chan, Sewin, 2001. "Spatial Lock-in: Do Falling House Prices Constrain Residential Mobility?," Journal of Urban Economics, Elsevier, vol. 49(3), pages 567-586, May.
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Citations

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Cited by:
  1. Edward P. Lazear & James R. Spletzer, 2012. "The United States Labor Market: Status Quo or A New Normal?," NBER Working Papers 18386, National Bureau of Economic Research, Inc.
  2. Romain Bouis & Ane Kathrine Christensen & Boris Cournède, 2013. "Deleveraging: Challenges, Progress and Policies," OECD Economics Department Working Papers 1077, OECD Publishing.
  3. Christian A. L. Hilber & Teemu Lyytikäinen, 2012. "The Effect of the UK Stamp Duty Land Tax on Household Mobility," SERC Discussion Papers 0115, Spatial Economics Research Centre, LSE.
  4. Davis, Morris A. & Fisher, Jonas D. M. & Veracierto, Marcelo, 2013. "Gross Migration, Housing and Urban Population Dynamics," Working Paper Series WP-2013-19, Federal Reserve Bank of Chicago.
  5. Andrew Caplin & Anna Cororaton & Joseph Tracy, 2012. "Is the FHA Creating Sustainable Homeownership?," NBER Working Papers 18190, National Bureau of Economic Research, Inc.
  6. Chris Cunningham & Robert R. Reed, 2012. "Housing wealth and wage bargaining," Working Paper 2012-20, Federal Reserve Bank of Atlanta.
  7. Joseph Gyourko & Joseph Tracy, 2013. "Unemloyment and Unobserved Credit Risk in the FHA Single Family Mortgage Insurance Fund," NBER Working Papers 18880, National Bureau of Economic Research, Inc.
  8. Bracke, Philippe & Hilber, Christian & Silva, Olmo, 2013. "Homeownership and Entrepreneurship: The Role of Commitment and Mortgage Debt," IZA Discussion Papers 7417, Institute for the Study of Labor (IZA).
  9. Cunningham, Chris & Reed, Robert R., 2013. "Negative equity and wages," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 841-849.
  10. Brian K. Bucks & Jesse Bricker, 2013. "Household mobility over the Great Recession: evidence from the U.S. 2007-09 Survey of Consumer Finances panel," Finance and Economics Discussion Series 2013-53, Board of Governors of the Federal Reserve System (U.S.).
  11. Coulson, N. Edward & Grieco, Paul L.E., 2013. "Mobility and mortgages: Evidence from the PSID," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 1-7.

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