Cleveland Fed Study: Negative Equity Doesn’t Lock in Jobseekers | Bedford Real Estate

Are underwater homes deterring unemployed people from moving to get new jobs? Not according to a new study from the Federal Reserve Bank of Cleveland, which finds that homeowners will relocate for a job, even if they will lose money on the sale of their home.

The study found that “the lock-in effect,” a term coined to help explain why joblessness persisted so stubbornly during the recovery’s first fitful years, is really a myth.

After the financial crisis, the number of homeowners who relocated from one state to another declined. At the same time, the number of homeowners who were underwater, i.e., owed more than their house was worth, increased. Some studies suggested that the decline in mobility rates was caused by homeowners being locked in to their underwater homes, contributing to higher unemployment rates.

However, the data used in those earlier studies had many limitations. Using anonymous data from two major credit bureaus, a team of researchers, including the Cleveland Fed’s Yuliya Demyanyk, were able to obtain information about the mortgage debt of tens of millions of individuals. Their study found compelling evidence that equity in a home is not a crucial part of the decision to relocate for a job. In fact, underwater homeowners are probably more likely to move than borrowers with equity in their homes.

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