by Lena Groeger ProPublica, Propublica, Jan. 11, 2012, 10:41 a.m.

Answers to homeowners’ questions about the Independent Foreclosure Review.The administration’s website for the foreclosure prevention program. Provides an FAQ, homeowner examples, and other tools to see whether you might qualify for the program.A list of HUD-approved housing counseling agencies nationwide.Tips for homeowners from the Federal Trade Commission.These rules lay out how mortgage servicers are supposed to conduct the program.A finance and economics blog that provides news and metrics on the state of the housing market.

Prevailing wisdom has it that homeowners who owe more on their mortgages than their houses are worth — known as being “underwater” — are forced to stay put because the property is too difficult to sell. So people who would otherwise relocate — say, to find a job — are “tethered to their homes.” It’s a theory touted by prominent New York Times columnist Thomas Friedman, Harvard economist Lawrence Katz, and regularly makes appearances in the media.

But according to economist Sam Schulhofer-Wohl at the Federal Reserve Bank of Minneapolis, they’ve all got it backwards: underwater homeowners are actually more likely to move.

In a forthcoming paper, he argues that the main source of empirical evidence for the established view is flawed, because it ignores a substantial number of movers.

Evidence for the tethered-to-their-homes thesis comes largely out of a paper from the National Bureau of Economics Research (NBER) whose authors hail from the Wharton School of the University of Pennsylvania and the Federal Reserve Bank of New York. The paper analyzed a national sample of homes by U.S. Census Bureau called the American Housing Survey. Since 1985, Census Bureau interviewers have tracked over 60,000 housing units across the country, returning every two years to record who lives there. If the Census records a house as occupied by its owner, then two years later there are four possibilities: the house is occupied by the same owner, a different owner, a renter, or nobody (the house is vacant.)

In the original NBER research paper, all entries recorded as renters or vacancies were dropped from the data, so that only homes with a different owner were counted as a “move.” The authors explained that this was done on purpose, because housing mobility has traditionally referred to “permanent” moves where an owner sells a house and never returns. Using this measure, the researchers found that underwater homeowners were almost a third less likely to move.

But if you owed more than your home was worth and were desperate for a job, maybe you’d rent while you left to try greener pastures, or you might even ditch the house altogether, especially if the bank was going to foreclose on you anyway. So Schulhofer-Wohl analyzed exactly the same data, but he included properties that were rented or vacant.

“I thought, let’s count as moves all the times where someone moved out and rented their house, or moved out and left it vacant, which could happen if they were foreclosed upon.” He found that if you included all the renter or vacancy cases, people with negative equity were actually more mobile than those with positive equity.

Schulhofer-Wohl thinks that only counting moves in which a person leaves and never comes back is unnecessarily strict. Since the Census survey gathers information every two years, “the distinction between temporary and permanent is not just a matter of leaving for a month on vacation,” said Schulhofer-Wohl. “These ‘temporary’ moves really have some duration to them.”

Now, neither counting method resolves a larger question: Is the overall unemployment rate affected by whether underwater homeowners can move to look for work? Pundits assume a connection. The data suggests it’s not so simple.

The assumption goes: some towns are currently hiring, others aren’t. If job seekers were perfectly mobile, they could leave at the drop of a hat to find a job anywhere in the country. (So laid-off app developers from Silicon Valley could go work for a software venture starting up in Anchorage, Alaska). In a world of perfect mobility, localities with low unemployment could suck workers out of areas with high unemployment, which would lower the nation’s overall rate of unemployment.

But according to Schulhofer-Wohl, the vast majority of moves are local — people moving close by to where they already live — so most moves don’t alter overall unemployment. Most people aren’t moving from Silicon Valley to Anchorage, but rather from one side of the valley to the other.

Joseph Gyourko, co-author of the NBER paper and a real estate and finance professor at the Wharton School of the University of Pennsylvania, points out a more depressing reason that mobility might not affect unemployment. There could be so much unemployment that even if an underwater homeowner couldn’t move to take a job elsewhere, an unemployed person near the job would snatch it up. “That’s all you need for this not to have a big labor market effect,” he said in an email.

 

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