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Study Concludes Underwater Homeownership Not a Factor in Relocation

Robert Ottone
Jul 12, 2013

On the heels of the Federal Housing Finance Agency (FHFA) launching a new program to help underwater borrowers stay in their homes, Yuliya Demyanyk, a senior research economist with the Federal Reserve Bank of Cleveland, has published the findings of a recent study, "Keeping the House or Moving for a Job," that reverses the initial findings that mobility was tied to underwater homeownership. A previous study published in 2010 indicated that homeowners weren’t uprooting and heading elsewhere, a sign of the difficult economy, but also a strong indicator of a poor housing market. At the time, University of Toronto professor Richard Florida told USA Today: "It's important for people to move to where the new opportunities are, because that is the cornerstone of our idea-driven economy." The twofold study, spearheaded by Demyanyk, and co-authored by Dmytro Hryshko, María José Luengo-Prado, and Bent Sørensen, found that underwater homeownership is, in fact, not a barrier for relocation. “If a hypothetical unemployed, underwater homeowner gets a job offer, he is going to take it,” Demyanyk said. The Bureau of Labor Statistics (BLS) reported in 2012 that a projected growth of 0.7 percent annually in the labor market would occur, which is somewhat encouraging. While this is hardly the first paper to declare that underwater homeownership is a leading contributor to lack of mobility, it utilized credit report data and developed a theoretical model to better-provide information about borrowers regarding negative home equity. From the report: “The results show that if an unemployed homeowner with negative equity is able to find a job in another core-based statistical areas (CBSAs), he or she is highly likely to accept this job because the net benefit of moving (getting a higher income minus paying the cost of selling the house) outweighs the benefit of staying put, remaining unemployed, and keeping an underwater mortgage.” “We conclude that negative equity does not limit job-related mobility and, hence, is not a major reason for elevated aggregate unemployment in the United States,” reads the report. With an increase in the job market, combined with the notion of underwater homes not limiting the mobility of job-seekers, economic recovery in the housing market could be attained quicker.
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