Locked in the House: Do Underwater Mortgages Reduce Labor Market Mobility?

Donovan, Colleen; Schnure, Calvin

doi:10.2139/ssrn.1856073

Cited by 51 publications

(38 citation statements)

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“…These papers can be grouped into three broad categories: (i) macroeconomic models of the impact of the housing downturn on labor mobility and unemployment (Herkenhoff and Ohanian 2011;Karahan and Rhee 2011;Sterk 2010); (ii) empirical studies of recent changes in geographic mobility and their implications for labor market outcomes (Aaronson and Davis 2011;Donovan and Schnure 2011;Modestino and Dennett 2011;Molloy, Smith, and Wozniak 2011);(iii) direct assessments of the relationship between housing market conditions, geographic mobility, and individual labor market outcomes (Farber 2010, Schmitt andWarner 2011).…”

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confidence: 99%

House lock and structural unemployment

Valletta

2013

Labour Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. A recent decline in geographic mobility in the United States may have been caused in part by falling house prices, through the "lock in" effects of financial constraints faced by households whose housing debt exceeds the market value of their home. I analyze the relationship between such "house lock" and the elevated levels and persistence of unemployment during the recent recession and its aftermath, using data that covers the period through the end of 2011. Because house lock will extend job search in the local labor market for homeowners whose home value has declined, I focus on differences in unemployment duration between homeowners and renters across geographic areas differentiated by the severity of the decline in home prices. The empirical analyses rely on microdata from the monthly Current Population Survey (CPS) files and an econometric method that enables the estimation of individual and aggregate covariate effects on completed unemployment durations in "synthetic cohort" (pseudo-panel) data. The estimates indicate the absence of a meaningful house lock effect on unemployment duration.JEL Classification: J6, R31

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confidence: 99%

House lock and structural unemployment

Valletta

2013

Labour Economics

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“…The possibility of a Ushape relationship between negative equity and housing turnover is discussed in Andersson and Mayock (2013). 50 For examples of aggregate studies see Donovan andSchnure (2011) andNenov (2010).…”

Section: Negative Equity and Housing Turnovermentioning

confidence: 99%

“…These loans, of course, turned out to be much quicker to default during the bust phase of the housing cycle. 72 Figure 12 House price cycles were more pronounced in some places, leading to a higher probability of negative equity. Income shocks were also spatially concentrated, in many cases in the same areas as the biggest house price cycles.…”

Section: The Distribution Of Foreclosuresmentioning

confidence: 99%

“…An important line of inquiry is the extent to which the high foreclosure rates for certain vintages of nonprime mortgages were due to weaker underwriting of these mortgages -both in observable risk characteristics and unobservable dimensions -and how much to the deteriorating economic environment. Haughwout et al (2008) 72 For example, see Chan et al (2013) and Bayer et al (2013). 64 capturing any unobserved underwriting quality explain little of the observed differences in default behavior.…”

Section: The Distribution Of Foreclosuresmentioning

confidence: 99%

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How Mortgage Finance Affects the Urban Landscape

Chan

Haughwout

Tracy

2015

Handbook of Regional and Urban Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis chapter considers the structure of mortgage finance in the U.S., and its role in shaping patterns of homeownership, the nature of the housing stock, and the organization of residential activity. We start by providing some background on the design features of mortgage contracts that distinguish them from other loans, and that have important implications for issues presented in the rest of the chapter. We then explain how mortgage finance interacts with public policy, particularly tax policy, to influence a household's decision to own or rent, and how shifts in the demand for owner-occupied housing are translated into housing prices and quantities, given the unusual nature of housing supply. We consider the distribution of mortgage credit in terms of access and price, by race, ethnicity, income, and over the lifecycle, with particular attention to the role of recent innovations such as non-prime mortgage securitization and reverse mortgages. The extent of negative equity has been unprecedented in the past decade, and we discuss its impact on strategic default, housing turnover, and housing investment. We describe spatial patterns in foreclosure and summarize the evidence for foreclosure spillovers in urban neighborhoods. Finally, we offer some thoughts on future innovations in mortgage finance. How Mortgage Finance Affects the Urban LandscapeOver 80 percent of Americans live in metropolitan areas, and housing is the dominant land use in cities. For many Americans, homeownership is an important goal, and a substantial majority of the population, including renters, believes that homeownership is a good way to improve their financial situation (Fannie Mae, 2013). For many owners, and for the great majority of renters, purchasing a home will mean obtaining a mortgage. For this reason, the availability and form of mortgages is an important determinant of the homeownership rate, which in turn affects the nature of the housing stock and the organization of residential activity within and across metropolitan areas.In this chapter, we consider the literature on mortgage finance in the U.S. and its role in shaping the urban landscape. The 2000s witnessed an enormous boom/bust cycle in the residential real estate market, followed by the sharpest contraction in the overall economy since the 1930s.These events, which are widely thought to have been driven at least in part by the mortgage market, had a pronounced spatial pattern ...

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“…This literature has also yielded mixed results, in part because of a lack of data on migration patterns by homeownership status over sufficient periods of time (see Aaronson and Davis 2011;Donovan and Schnure 2011;Farber 2011;Schmitt and Warner 2011). 9 Finally, although some of these studies control for national economic conditions none have used a comprehensive model to account for relative economic conditions and local amenities between origin and destination 7 Ferreira, Gyourko, and Tracy (2010) analyzed the American Housing Survey and find that between 1985 and 2005, homeowners who have negative equity were one-third less likely to move, reducing the two-year mobility rate by 4 percentage points.…”

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confidence: 99%

Are American Homeowners Locked into Their Houses? The Impact of Housing Market Conditions on State-to-State Migration

Modestino

Dennett

2012

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 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 jobseekers 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. Terms of use: Documents in JEL Classifications: J61, R23

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Locked in the House: Do Underwater Mortgages Reduce Labor Market Mobility?

Cited by 51 publications

References 19 publications

House lock and structural unemployment

House lock and structural unemployment

How Mortgage Finance Affects the Urban Landscape

Are American Homeowners Locked into Their Houses? The Impact of Housing Market Conditions on State-to-State Migration

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