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Underwater Homeowners Stuck in Place

Packing up and moving across state lines is a time-honored tradition in this country.  Settlers headed to the Great Plains in the 1800s, retired snowbirds have flocked to the Sun Belt for decades, and roughnecks today are pouring into North Dakota for the shale-oil boom.

But moves like these became extremely difficult for an unprecedented number of Americans after U.S. house prices plunged, suddenly trapping millions of homeowners in houses that were worth less than what they owed on their mortgages.

The phenomenon, called “house lock,” was more pervasive during the recent housing market downturn, because the downturn was national in scope – prior housing declines had largely been isolated in regional markets.

Some 110,000 to 150,000 fewer Americans relocated each year from 2006 through 2009, reducing interstate migrations nationwide by 2 percent to 3 percent annually, according to the first study using data on individual house prices and mortgage balances to confirm that an increase in a state’s homeowners with “negative equity” affected migrations out of that state.

The findings “confirmed our belief that this negative equity must be affecting someone on the margin who wanted to move,” said Alicia Sasser Modestino, a senior economist for the Federal Reserve Bank of Boston.

“Though it’s not a whole lot of people, there is an effect, and it is measurable,” she said.

Renters, not surprisingly, are footloose and free to roam, the Fed’s research showed.  Their migration patterns were unaffected by housing market conditions, further confirming that a lack of home equity was the culprit in slowing post-recession interstate  migrations.

Although U.S. house prices are starting to recover, the Fed’s findings remain relevant: in 27 states, according to Zillow Inc., at least one in five homeowners has no equity – and they’re still stuck.

One Response to Underwater Homeowners Stuck in Place

  1. Kyle Johnson says:

    With regards to retirement planning, I think that the lack of “equity” in a home and in the most unfortunate circumstances, “house lock,” has implications that are significant. From not having the flexibility to move somewhere you dream of in retirement, to the practical nature of not being able to purchase/rent a home that is more suited for retirement and aging (i.e. ranch style or single story home so you don’t have to climb stairs). This is yet another reason why I STRONGLY encourage and work toward a debt free lifestyle for all retirees in conjunction with other aspects of their planning (i.e. income strategy). An advisor can help significantly, not only in retirement years, but well in advance of them. Thanks for posting!