Last year I thought that “housing lock” – where people couldn’t move because they were underwater – was a minor but important part of our unemployment and economic crisis. Now I think it’s not an issue, with a small probability that it is either a very small issue or perhaps even a plus. But many people still think this is important, and it is understandable because it’s an easy idea to understand.
Let’s go over a few things we know about “housing lock” now from the latest research that we didn’t know before:
“In the available data, negative equity does not make homeownersless mobile [...] home-owners with negative equity are at least as mobile as those with positive equity, holding other characteristics constant. Homeowners with extremely negative equity are especially mobile.” (Sam Schulhofer-Woh.)
“After we remove the eﬀect of the change in procedures, we ﬁnd that the annual interstate migration rate follows a smooth downward trend from 1996 to 2010. The 2007–2009 recession is not associated with any additional decrease in interstate migration relative to trend.” (Greg Kaplan and Sam Schulhofer-Wohl.)
“[We] explores the effects of two such forces that have had large economic effects in the past five years: the recession and housing market contraction. We find relatively small roles for both of these cyclical downturns…we find no evidence that migration rates were lower in the recent period in states with a larger share of underwater mortgages…preliminary studies by other researchers have also found little evidence that house lock has reduced migration or raised unemployment in the past several years.” (Molloy, Smith, Wozniak.)
“Using data from the DWS on the unemployment experience of movers and non-movers, these
differences in the staying rate across states by house-price changes suggest that the overall effect of
housing lock is likely to be small” (John Schmitt and Kris Warner of CEPR.)
Got that? According to all the recent research, there’s been no sudden change in mobility related to the housing crash. It looks like people with high negative equity might have even higher mobility than others, meaning they are more likely to rent out their place or simply walk away. Americans already have a very high rate of mobility (compared to other countries) which gives us plenty of churn, and unemployment is up everywhere. The sudden hit previous noted to mobility turned out to be a data questioner fluke. Nobody can find evidence of a sudden shock to mobility as a result from the housing crash.
Christina Romer has also summarized this in her excellent Jobless Rate Is Not the New Normal:
What about declining geographic mobility? Today, about 11 million families are underwater on their mortgages, which means they owe more than their homes are currently worth. This could make it harder for them to sell their homes and move to jobs in other regions.
But the argument that such “house lock” is a source of high unemployment runs into two empirical walls. First, jobs are not plentiful anywhere. In the most recent data, the unemployment rate in every state was above its level before the recession. So our unemployment problem wouldn’t go away if only people could move more easily.
Second, if house lock were an important factor, we would expect to see greater declines in labor mobility in states with more underwater mortgages, and among homeowners compared with renters. A study scheduled for publication in The Journal of Economic Perspectives finds no support for either of these hypotheses.
Get Your Scatterplot On – Housing Lock and Deleveraging Edition
I like telling this story as a series of graphs. We’ve noted before that underwaterness is correlated with unemployment (last August):
We can now invoke Delong’s parrot, who knows two words: supply and demand. Is this is a supply (of labor) issue, where homeowners can’t move, and thus workers can’t reshuffle to new places? Or demand, related to a sudden shift to deleveraging even with zero interest rates? Let’s scatterplot the underwaterness of states by mobility. From Internal Migration in the US: Updated Facts and Recent Trends (Molloy, Smith, Wozniak):
I’m still amazed at that being such a flat line, or one where it actually increases mobility. “Five states had the largest share of underwater mortgages by far, but these states did not experience larger drops in migration than average. Interestingly, migration out of states with a high negative equity share appears to have risen a bit more than other states in the CPS, but this result is not evident in the ACS data.” If you are that deeply underwater, chances are you are more likely to walk and either default or rent out the place.
John Schmitt created a scatterplot of mobility versus displaced workers when I emailed him about his study that is mentioned above. The researchers at CEPR will kindly create graphs based on their analysis at the requests of interested reporters, thinkers and writers; their people are <hustle> just as helpful and informative as the experts that are available at the Roosevelt Institute. </hustle>
The line is close to flat, and not statistically significant. This specifically targets displaced workers, who as a category are probably younger and less likely older and more likely to be homeowners.
So what else could be going on? The Federal Reserve Bank of New York collects the credit conditions of the country as a whole and also a selection of 11 states. Since 2008 people have been deleveraging:
Now how does deleveraging look when plotted against underwater homes? I am using the percent decline per capita from Q2 2008 to Q4 2010 as reported by FSBNY. The results are the same if I use actual decline per capita (is there a best practice for this analysis between the two?). Here’s the plot:
And how does deleveraging look against the state level unemployment?
For one approach to the idea linking deleveraging and the economic crisis see Paul Krugman and Gauti Eggertsson’s paper, Debt, Deleveraging and the Liquidity Trap, with an informal summary at VoxEU. This appears to be in motion at the state level far more than a housing lock story.