Migratory lockdown: underwater homeowners confined

This article explains the effect of negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. on homeowner mobility, identifies the factor which influence migration and advises how brokers and agents can counsel homeowners considering relocating under the conditions of this Lesser DepressionThe period from 2009-2016, characterized by persistent slow job growth and low home sales..

The great migration debate

The ability to pack up, pick up and move on in search of new beginnings is a quintessential part of the American spirit. Yet the frost of the current Lesser DepressionThe period from 2009-2016, characterized by persistent slow job growth and low home sales. is changing this; fences are being drawn ever more tightly around the once highly mobile American and nothing explains the present epidemic of migratory lockdown more than the negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. condition which afflicts real estate.

Migration tends to be procyclical, that is, it rises during periods of economic expansion and falls during periods of economic recession.  Economists agree on this matter, however lately they have disagreed over the matter of whether negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. keeps a homeowner from moving. This condition, known as house lock, and which we reference as a statewide and nationwide occurrence called migratory lockdown, is debated in studies issued by the Federal ReserveThe central bank in control of regulating the U.S. financial and monetary system. Bank of Minneapolis (FRBM), the Federal ReserveThe central bank in control of regulating the U.S. financial and monetary system. Bank of Chicago (FRBC) and the Federal ReserveThe central bank in control of regulating the U.S. financial and monetary system. Board of Governors (FRBG). Largely, researchers at those institutions argue negative equityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. has little to no bearing on a homeowner’s ability to move. [For more information on the argument against house lock, see the December 2010 FRBM paper, Negative EquityThe condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. Does Not Reduce Homeowners’ Mobility, the September 2011 FRBC paper, How much has house lock affected mobility and the unemployment rate? and the May 2011 FRBG paper, Internal Migration in the United States.]