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How does home equity affect mobility?

Listed author(s):
  • Andersson, Fredrik
  • Mayock, Tom

The impact of the housing crash on household mobility is theoretically ambiguous. Households that have little or negative equity are less likely to move because the proceeds from the sale of the home may not be large enough to pay off the original mortgage and provide a sufficient down payment on a new home. On the other hand, at sufficiently negative levels of home equity, household mobility may actually increase through the foreclosure channel. In this paper we develop and empirically test a model that incorporates both of these mechanisms. Our empirical results – based on data for Florida homeowners – provide evidence of a non-monotonic relationship between home equity and mobility. Although default-induced mobility did increase following the financial crisis, this increase did little to offset the substantial decline in voluntary moves due to home equity lock-in; we find that on net, household mobility declined by roughly 25% in our sample because of reductions in equity.

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File URL: http://www.sciencedirect.com/science/article/pii/S009411901400062X
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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 84 (2014)
Issue (Month): C ()
Pages: 23-39

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Handle: RePEc:eee:juecon:v:84:y:2014:i:c:p:23-39
DOI: 10.1016/j.jue.2014.08.004
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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  1. Anthony Pennington-Cross & Souphala Chomsisengphet, 2007. "Subprime Refinancing: Equity Extraction and Mortgage Termination," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 233-263, 06.
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  3. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
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  7. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2009. "Moral and Social Constraints to Strategic Default on Mortgages," CEPR Discussion Papers 7352, C.E.P.R. Discussion Papers.
  8. 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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  11. Schulhofer-Wohl, Sam, 2012. "Negative equity does not reduce homeowners’ mobility," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Feb, pages 1-17.
  12. Neil Bhutta & Jane K. 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.).
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