No "House Lock". Homeowners Relocate to Find Work

Therernhas been periodic speculation that one factor in the continuing highrnunemployment levels is “house lock,” or the reluctance of households to sellrntheir homes in a declining price environment. rnThis, the theory goes, may create a geographic mismatch between thernlocations of available workers and available job openings.  If this is true then it follows thatrnhousehold migration should be relatively greater among renters than owners inrnthe current market and should be higher in areas where home prices have beenrnmore stable compared to areas that have suffered large declines in homernvalues.  It also should follow thatrnmigration would be higher in households – whether renters or owners – where thernhead is unemployed.</p

ThernFederal Reserve Bank of Chicago recently completed a study that found that nonernof these conditions apply to the current recession and concluded that “there isrnlittle empirical evidence that house lock has been an important driver of thernrecent high unemployment rate.”</p

Thernstudy, conducted by Daniel Aaronson, the bank’s vice president and economicrnadvisor and Jonathan Davis, an associate economist, used the U.S. CensusrnBureau’s Survey of Income and Program Participation (SIPP) as the basis forrntheir study.  SIPP is a largernrepresentative sample of non-military households which is interviewed everyrnfour months (called a wave) for two to four years.  The surveys overlap (one group is interviewedrnin January, another in February, etc.) which allows for a month-by-monthrnanalysis of migration rates, however, when a cohort’s two to four year tenurernis ended it is replaced by another group as the next wave begins.  This results in occasional four month gaps inrnthe data.  The SIPP data only allowed forrnevaluation of state-to-state migration.</p

Inrna given year, fewer than 2 percent of all SIPP households cross a state border,rnbut migration is three to four times more common for renter households than forrnhomeowners.  This ratio has heldrnthroughout the sample period, therefore over the past 25 years a significantrnportion of geographic relocation has been among households unencumbered byrnowning a house.</p

Aaronsonrnand Davis compared the average four-month state-to-state migration rates duringrnthe last three years of the economic expansion (2005-2007) to  the slightly shorter December 2008 to Julyrn2010 period coinciding with the worst of the recession, and found thatrnhomeowner migration rates from 0.0025 during the2005-07 period to 0.0019 duringrnthe December 2008-July 2010 period, about 0.02 percent.  But renter migration rates dropped as wellrnand did so roughly in tandem.  Furthermore,rnthe results are very similar when the recent period is compared to ratesrnthrough the entire 2002-2007 economic expansion and when compared to therndifferences between earlier periods of growth and subsequent recessions Inrnfact, the authors say, “Given the extent of the downturn in 2009-09, therndecline in homeowner and renter mobility was rather tame this time around.” </p

Housernlock was no more of a factor in those states suffering the most severe housingrnbusts.  In fact, during 2009 and earlyrn2010 homeowner state-to-state mobility rates decreased more for households inrnstates that experienced smaller price declines. rnEven in the five states with the largest drop in house prices there wasrnno evidence that homeowners were migrating out at a historically unusual rate.</p

Finally,rnthere was no evidence found that households where the head was out of work werernmore likely to move, a fact that held true again for both home owners andrnrenters.</p

Thernauthors put forth two caveats for their findings.  The study as mentioned earlier wasrnconstrained to looking at state to state migration but a limited analysis ofrnin-state migration data, especially in larger states where there may be morernthan one distinct labor market,  indicates that homeowner in-state migration alsornfell during the 2009-2010 period  butrnthere are indications that renter migration may have fallen less.  The second caveat is that the study wasrnconducted during a period when unemployment was at 9.5 percent so the lack ofrnjobs may have contributed to the lack of mobility rather than the reverse.  It could be that once the demand for laborrnpicks up any geographic mismatch will become more apparent.

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