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Negative equity and wages

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  • Cunningham, Chris
  • Reed, Robert R.

Abstract

We examine the relationship between housing equity and wage earnings using nine waves of the national American Housing Survey from 1985 to 2003. Employing a rich set of time and place controls, a synthetic mortgage instrumental variable strategy, and a first difference estimator we find that people underwater on their mortgage command a significantly lower wage than other homeowners. The finding survives a number of robustness checks for reverse causality and unobserved heterogeneity. We also explore other determinants of “house lock” including loss aversion, a low existing mortgage interest rate and property tax assessment caps, but do not find these factors mitigate the effect of negative equity on wages.

Suggested Citation

  • Cunningham, Chris & Reed, Robert R., 2013. "Negative equity and wages," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 841-849.
    • Handle: RePEc:eee:regeco:v:43:y:2013:i:6:p:841-849
    DOI: 10.1016/j.regsciurbeco.2013.08.005
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    Cited by:

    1. Niu, Yi & Ding, Chengri, 2015. "Unemployment matters: Improved measures of labor market distress in mortgage default analysis," Regional Science and Urban Economics, Elsevier, vol. 52(C), pages 27-38.
    2. Reed, Robert R. & LaRue, Amanda & Ume, Ejindu S., 2018. "Mortgage recourse provisions and housing prices," Regional Science and Urban Economics, Elsevier, vol. 73(C), pages 99-111.
    3. Elora Raymond, 2016. "Negative equity in the Sixth Federal Reserve District," FRB Atlanta Community and Economic Development Discussion Paper 2016-1, Federal Reserve Bank of Atlanta.
    4. Reed, Robert R. & Ume, Ejindu S., 2016. "Housing and unemployment: The search for the “American Dream”," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 72-86.
    5. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 987-1045, Elsevier.
    6. Asaf Bernstein, 2021. "Negative Home Equity and Household Labor Supply," Journal of Finance, American Finance Association, vol. 76(6), pages 2963-2995, December.

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    More about this item

    Keywords

    Negative equity; Wages; Mortgage default; Housing; Mobility;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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