NCPA - National Center for Policy Analysis


January 6, 2009

In a weak housing market, households get "locked in" to their homes and are prevented from "moving up" to larger homes and better neighborhoods, according to researchers Fernando Ferreira, Joseph Gyourko and Joseph Tracy.

Using data from the American Housing Survey, 1985-2005, Ferreira et al., found that mobility is almost 50 percent lower for owners with negative equity in their homes.   They conclude that this does not imply that current worries about default and owners having to move from their homes are entirely misplaced.  However, history suggests that the lock-in effects of negative housing equity and high mortgage interest rates were dominant.

The researchers note that pronounced shifts have occurred over time in housing values.  For example:

  • 1985-1997 saw a substantial boom and bust in California housing markets.
  • The data show a peak in the average house price of $253,617 in 1989, with an average loan-to-value (LTV) ratio of 67 percent, and a two-year mobility rate of just over 15 percent.
  • Prices in California fell in 1991 and bottomed out in 1997 to an average house price of $201,693, with an average LTV of 78 percent; the two-year mobility rate was only 11.7 percent.
  • It was not until 1998 -1999 that mobility returned to a peak level of 15.8 percent.

Ferreira et al., also reported that demographics play a role in determining who moves:

  • Household mobility increases with the education of the head of household.
  • Whites are more likely to move than non-whites.
  • Male-headed households are less likely to move than female-headed households.
  • While being married is not a significant predictor of household mobility, divorce is.

Finally, each additional year of age reduces household mobility until the household head reaches early fifties; after this point, aging raises the likelihood of a move.

Sources:  Matt Nesvisky, "Housing Busts May Lower Household Mobility," NBER Digest, October 2008, and Fernando Ferreira et al., "Housing Busts and Household Mobility," National Bureau of Economic Research, Working Paper 14310, September 2008.

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