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How does home equity affect mobility?

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  • Andersson, Fredrik
  • Mayock, Tom

Abstract

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.

Suggested Citation

  • Andersson, Fredrik & Mayock, Tom, 2014. "How does home equity affect mobility?," Journal of Urban Economics, Elsevier, vol. 84(C), pages 23-39.
  • Handle: RePEc:eee:juecon:v:84:y:2014:i:c:p:23-39
    DOI: 10.1016/j.jue.2014.08.004
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    References listed on IDEAS

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    Cited by:

    1. Sander van Veldhuizen & Bart Voogt & Benedikt Vogt & Andrea Morescalchi, 2017. "Negative home equity and job mobility," CPB Discussion Paper 345, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Sander van Veldhuizen & Benedikt Vogt & Bart Voogt, 2016. "Negative Home Equity and Household Mobility: Evidence from Administrative Data," CPB Discussion Paper 323, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, Elsevier.
    4. Bloze, Gintautas & Skak, Morten, 2016. "Housing equity, residential mobility and commuting," Journal of Urban Economics, Elsevier, vol. 96(C), pages 156-165.
    5. J.W.A.M. Steegmans & W.H.J. Hassink, 2015. "Decreasing house prices and household mobility: An empirical study on loss aversion and negative equity," Working Papers 15-12, Utrecht School of Economics.
    6. Meekes, Jordy & Hassink, Wolter, 2017. "The Role of the Housing Market in Workers' Resilience to Job Displacement after Firm Bankruptcy," IZA Discussion Papers 10894, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Mobility; Negative equity; Mortgage default;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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