Does negative equity keep an underwater homeowner from moving?

  • Yes. Negative equity locks in an underwater homeowner’s financial assets and physical mobility. (77%, 114 Votes)
  • No. Negative equity homeowners are just as likely to move as positive equity homeowners. (23%, 34 Votes)

Total Voters: 148

Speculations about American migratory patterns since the collapse of the housing market have been confirmed: people are not moving.

According to the Carsey Institute’s analysis of the U.S. Census Bureau’s latest American Community Survey (ACS), which released the national data on American mobility spanning 2008-2010, states that were growing rapidly are now at a standstill and cities that were booming are now busting.

The Carsey Institute found the following:

  1. States such as Arizona, Florida and Nevada which saw a frenzied increase of people moving in during the Millennium Boom registered a halt in the number of people moving in after the housing crisis hit and subsequently experienced net losses in migrants;
  2. States such as California, New York and Massachusetts which experienced an increase in people moving out during the Millennium Boom continued to experience the net loss in migrants after the housing market went sour, however the loss was to a significantly lesser degree. The number of people leaving California decreased from 201,000 in 2005 to 71,000 in 2009; and
  3. Cities such as Atlanta, Phoenix and California’s own once-thriving Riverside which were magnet destinations for Generation Y (Gen Y) during the Millennium Boom plummeted to the bottom of the Gen Y’s list of top hot spots to live.

first tuesday take: We are in a migratory lockdown. In the era of bad times — the financial crisis, the Lesser Depression (which has to do with jobs) and the nation’s general mental rigor mortis — Americans are economic tenants of necessity, confined to their four-bedroom and two-car garage prisons.

In California, as the Carsey Institute confirms, people are stuck. Now, that’s not so much a revelatory item of insider information, considering we already know there are 2,500,000 negative equity properties in the state which lock homeowners in place due to their inability to sell and relocate. However, this isn’t to say the new ACS data simply regurgitates old news.

Debates over the relationship between negative equity and homeowner (im)mobility have so far pulled data mostly from before the housing market collapse. The new ACS brings fresh figures to the table and settles the argument over whether the recent housing crisis really has contributed to house-lock, and thus the inability of homeowners to relocate to better labor markets and finally pump some human energy into a more promising recovery. [For more information on the house-lock debate, see the September 2011 first tuesday article, Debating for the underwater and underemployed.]

The new data confirms this: California is jammed in the midst of a dangerous quandary. More than 2,000,000 Californians are chained to their negative equity homes (mostly located in areas with little to no job opportunities) and have no mobility to relocate to greener pasture. So, since the epic failures of the Home Affordable Refinance Program (HARP), Home Affordable Modification Program (HAMP) and Home Affordable Foreclosure Alternative (HAFA) programs, what is the underwater and underemployed homeowner to do?

Strategically default. Strategic defaults make up to an estimated 30% of all notice of defaults (NODs) nationally, and the percentage is only going to increase as the public learns more about the personal relief and financial results it affords them. [For more information on the ineffectiveness of government programs like HARP, see the November 2011 first tuesday article, HARP 2.0: Bringing band-aids to a war zone; for more information about strategic defaults, see the July 2011 first tuesday article, Strategic default smarts.]

Meanwhile, California brokers and agents must make preparations for where the Golden State populations will move once the present migratory lockdown loosens. Though California’s net rate of migration is slow today, the state’s overall population continues to increase. It ticked upwards through the 1990s recession and, slowly but surely, it persistently grew through the Great Recession. [For more information on California’s demographic shift, see the June 2011 first tuesday article, Golden state population trends.]

All is quiet on the Western front now but make plans for movement to stir again come the end of the next decade.

RE: “Economy Alters How Americans Are Moving” from the NY Times