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Home appraisal’s ugly history and uncertain future

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Politics & MoneyMortgage

Fed researcher: Underwater homes are not holding jobseekers back

Researchers with the Federal Reserve Bank of Cleveland say underwater homeowners are no less likely to move for a new job than those with more equity in their properties.

In fact, underwater homeowners are more likely as a group to move away — losing money on their homes — when a job opportunity surfaces.

Yuliya Demyanyk made this conclusion in her new research report, debunking a popular theory that surfaced during the recession.

Countless media outlets reported on what’s known as the so-called lock-in effect, where those with negative equity avoid moving for a job due to their underwater status.

But Demyanyk’s research, which is based on data from credit bureaus, paints a far different picture.

The research team found that homeowners with homes worth less than 80% of their mortgage debt were one percent more likely to move for a new job in a given year when compared to those homes worth more than 120% of their mortgage debt – or those with more than 20% equity.

“Those with home values between 80% and 100% of their mortgage debt are 0.35% more likely to move to another CBSA than the homeowners with more than 20% equity. Homeowners with small positive equity are nearly as likely to move for a job as those with equity exceeding 20%,” Demyanyk reported.

The study takes researchers in a different direction since it shows those with employment opportunities – especially jobs opportunities at a higher pay – will move despite their negative-equity situations.

“If a hypothetical unemployed, underwater homeowner gets a job offer, he is going to take it,” Demyanyk said after analyzing various datapoints from credit bureaus and employment stats.

So why did so many of the hardest hit states continue to have unemployed, underwater borrowers if they were willing to move?

Demyanyk says the reason is simple — a good job may have been hard to find nationwide, leaving borrowers stuck regardless of their equity or underwater status.

She warns against using the locked-in theory to drive job creation initiatives.

“An implication for national policy­makers is that job creation efforts need not focus on the regions hit hardest by the housing bust. Consider that at the end of 2009, the under­water problem was concentrated in four sand states — Arizona, Florida, California, and Nevada — and in Michigan, all with negative equity rates topping 35% of total mortgages,” Demyanyk writes.

“If national policymakers thought only about creating jobs in those states out of fear that negative-equity borrowers wouldn’t move to other states for employment, they might be missing an opportunity to lift employment more broadly.”

Read the full report here.

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