How does home equity affect mobility?

Abstract

The impact of the housing crash on household mobility is theoretically ambiguous. Households that have little or negative equity are less likely to move because the proceeds from the sale of the home may not be large enough to pay off the original mortgage and provide a sufficient down payment on a new home. On the other hand, at sufficiently negative levels of home equity, household mobility may actually increase through the foreclosure channel. In this paper we develop and empirically test a model that incorporates both of these mechanisms. Our empirical results – based on data for Florida homeowners – provide evidence of a non-monotonic relationship between home equity and mobility. Although default-induced mobility did increase following the financial crisis, this increase did little to offset the substantial decline in voluntary moves due to home equity lock-in; we find that on net, household mobility declined by roughly 25% in our sample because of reductions in equity.