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Are American homeowners locked into their houses?: the impact of housing market conditions on state-to-state migration

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  • Alicia Sasser Modestino
  • Julia Dennett
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    Abstract

    U.S. policymakers are concerned that negative home equity arising from the severe housing market decline may be constraining geographic mobility and consequently serving as a factor in the nation's persistently high unemployment rate. Indeed, the widespread drop in house prices since 2007 has increased the share of homeowners who are underwater on their mortgages. At the same time, migration across states and among homeowners has fallen sharply. Using a logistic regression framework to analyze data from the Internal Revenue Service on state-to-state migration between 2006 and 2009, the authors discover evidence that "house lock" decreases mobility but find it has a negligible impact on the national unemployment rate. A one-standard deviation increase in the share of underwater nonprime households in the origin state reduces the outflow of migrants from the origin to the destination state by 2.9 percent. When aggregated across the United States, this decrease in mobility reduces the national state-to-state migration rate by 0.05 percentage points, resulting in roughly 110,000 to 150,000 fewer individuals migrating across state lines in any given year. Assuming that all of these discouraged migrants were job-seekers who were previously unemployed before relocating and then found a job in their new state would reduce the nation's unemployment rate by at most one-tenth of a percentage point in a given year. The cumulative effect over this period would yield an unemployment rate of 9.0 percent versus 9.3 percent in 2009. Recognizing that not all state-to-state migrants are job-seekers, not all job-seekers were previously unemployed, and not all previously unemployed job-seekers will successfully find work in their new location yields an unemployment rate that is virtually unchanged from the actual one that prevailed from 2006 to 2009.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 12-1.

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    Date of creation: 2012
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    Handle: RePEc:fip:fedbwp:12-1

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    Keywords: Housing - Prices ; Migration; Internal ; Unemployment;

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    1. Raven Molloy & Christopher L. Smith & Abigail Wozniak, 2011. "Internal migration in the United States," Finance and Economics Discussion Series 2011-30, Board of Governors of the Federal Reserve System (U.S.).
    2. Larry Long & Kristin Hansen, 1975. "Trends in return migration to the south," Demography, Springer, vol. 12(4), pages 601-614, November.
    3. W. A. V. Clark, 1985. "Human Migration," Book Chapters, in: Grant I. Thrall (ed.), Scientific Geography, pages 51 Regional Research Institute, West Virginia University.
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    5. Schulhofer-Wohl, Sam, 2012. "Negative equity does not reduce homeowners’ mobility," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Feb, pages 1-17.
    6. Patrick Bajari & Chenghuan Sean Chu & Minjung Park, 2008. "An Empirical Model of Subprime Mortgage Default From 2000 to 2007," NBER Working Papers 14625, National Bureau of Economic Research, Inc.
    7. Alicia Sasser & Bo Zhao & Darcy Rollins & Robert Tannenwald, 2006. "The lack of affordable housing in New England: how big a problem?: why is it growing?: what are we doing about it?," New England Public Policy Center Working Paper 06-1, Federal Reserve Bank of Boston.
    8. Henley, A, . "Residential Mobility, Housing Wealth and the Labour Market," Discussion Papers 9615, Department of Economics, University of Wales, Aberystwyth.
    9. Mueser Peter R. & Graves Philip E., 1995. "Examining the Role of Economic Opportunity and Amenities in Explaining Population Redistribution," Journal of Urban Economics, Elsevier, vol. 37(2), pages 176-200, March.
    10. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
    11. 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.
    12. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2008. "Housing busts and household mobility," Staff Reports 350, Federal Reserve Bank of New York.
    13. John Schmitt & Kris Warner, 2011. "Deconstructing Structural Unemployment," CEPR Reports and Issue Briefs 2011-06, Center for Economic and Policy Research (CEPR).
    14. Neil Bhutta & Jane Dokko & Hui Shan, 2010. "The depth of negative equity and mortgage default decisions," Finance and Economics Discussion Series 2010-35, Board of Governors of the Federal Reserve System (U.S.).
    15. Greenwood, Michael J. & Hunt, Gary L., 1989. "Jobs versus amenities in the analysis of metropolitan migration," Journal of Urban Economics, Elsevier, vol. 25(1), pages 1-16, January.
    16. Andra C. Ghent & Marianna Kudlyak, 2010. "Recourse and residential mortgage default: theory and evidence from U.S. states," Working Paper 09-10, Federal Reserve Bank of Richmond.
    17. 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.
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