Preliminary Results: The Impact of Low-Equity Housing Situations on Long Term Unemployment

Abstract

The current economic environment is dominated by two major concerns: (1) a large increase in the number of homeowners with negative equity in their house, and (2) a large and sharp increase in the unemployment rate. Individuals with negative equity are often unable to sell their home, recoup the outstanding balance on their mortgage and relocate to a new employment opportunity. As a result, economic shocks to real estate markets have the potential to increase the unemployment level. The existence of a positive relationship between the number of negative-equity households and unemployment could help justify financial assistance to homeowners with negative equity who must relocate for new job opportunities. This paper uses data from the Panel Study of Income Dynamics (PSID) to estimate a logistical regression model for a single long term unemployment variable. The results presented here indicate renters have a higher likelihood of long term unemployment than all homeowners regardless of equity level. These results also indicate higher long-term unemployment likelihoods for low-equity homeowners than for high-equity homeowners, even after accounting for age, marital status, and educational attainment. The results are preliminary and limited. Future research is needed to consider alternative definitions of household unemployment or under-employment, alternative samples covering years with greater economic turmoil, and a more sophisticated, less parsimonious model.