STOCK MARKET WATCH -- Thursday, 12 January 2012

[Demeter]

21. Underwater Homeowners May Swim Freely By Lena Groeger

http://www.nationofchange.org/underwater-homeowners-may-swim-freely-1326299497


...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...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...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.

JUST MORE PROOF THAT FREEDOM MEANS NOTHING LEFT TO LOSE...