Interregional Migration and Housing Vacancy: Theory and Empirics

We examine homeowner vacancy rate interdependencies over time and space through the channel of migration. Our theoretical analysis extends the Wheaton (1990) search and matching model for housing by incorporating interregional spillovers due to some households’ desires to migrate between regions and by allowing for regime-switching behavior. Our empirical analysis of vacancy rates for the entire U.S. and for Census regions provides visual evidence for the possibility of regime-switching behavior. We explicitly test our model by estimating basic Vector Autoregression (VAR) and Markov-Switching Vector Autoregression (MS-VAR) models using data on all four Census regions’ vacancy rates and migration dynamics among regions. Our preferred models accurately predict vacancy rates across our sample period. This regime switching approach provides unique insights for housing market and migration dynamics during the financial crisis period and its aftermath. For example, the Northeast returned to its low-vacancy state relatively quickly, while the South has remained in its high-vacancy state. Our theoretical model indicates the anticipated sign of the relationship between vacancy rates and migration measures and also the possibility of interdependencies across regions. Empirical results differ across regions. For example, comparing regions, the West is the least connected. Also, the South and Midwest are the regions that show significant evidence of higher vacancy rates when residents in other regions do not desire to migrate.