Recessions, Housing Market Disruptions, and the Mobility of Workers
At the end of September 2010, the United States Census Bureau released the 2009 data from the American Community Survey (ACS). One of the questions that participants are asked in this survey is where they were living one year ago. The answer to this question is of particular interest to labor economists since it is one way to assess the degree to which workers are moving around the country to pursue jobs or educational opportunities. Data from the past 10 years of surveys reveal that the fraction of the population living in the same house as they were one year ago has fluctuated between 83.5 percent and 85.5 percent.
The fraction of the population living in the same house as a year ago appears to vary with the business cycle, rising with recessions. The fraction hit a high during the recession of 2001 and remained high for several years before falling to a low in 2005. It rose again during the recent recession of 2007 to 2009.
One might expect labor mobility to look very different in those two recessions, since housing market problems were such an integral part of one and not the other. Home prices fell sharply and foreclosure rates rose steeply during the most recent recession, but not during the 2001 recession.
However, while related, housing-price declines and foreclosures can have countervailing effects on mobility. A foreclosure makes it less likely that people will be living in the same house that they were living in a year ago. On the other hand, if housing prices fall so much that homeowners are left owing more to the bank than their home is worth, they are more likely to stay in their home. In order to move, they will either need to sell the house for less than the remaining balance on the loan, come up with the difference, and bring it to the closing, or they will need to default on the loan and let the bank foreclose. To the extent that a homeowner is unable to come up with enough money to pay off the difference and unwilling to default and suffer the damage to their credit history, they may be less likely to move than they otherwise would be. Economists refer to this phenomenon as, “spatial lock-in.” Some observers have expressed concern that it may prevent workers from moving to cities where employment opportunities may be better than where they are currently living.
Data from the ACS show that the fraction of the population living in a different state from one year ago also fluctuates with the business cycle. This rate fell during the 2001 recession and in the following two years to below 2.3 percent. After peaking near 2.5 percent in 2006, it is below its 2003 level. On net, a smaller fraction of households moved to a different state during 2009 than did during 2003. This seems to imply that if even if foreclosures are causing some people to move, “spatial lock-in” is keeping enough households from moving so that the current interstate mobility rate has fallen to its lowest level in the past 10 years.
ACS data from 2009 are also available broken down by Metropolitan Statistical Area (MSA). The figure below plots the change in the fraction of the population that was in the same house as one year ago from 2008 to 2009 against the growth rate of MSA housing prices from 2007 to 2008, as measured by the Federal Housing Finance Aurhority’s (FHFA) repeat sales index. Each MSA is labelled with the code of the nearest major airport. This plot shows that, on average, MSAs that saw the largest drop in prices from 2007 to 2008 also saw the biggest decline in the fraction of the population that was living in the same house as it was one year earlier. For example, the Riverside-San Bernardino, California, MSA, for which the nearest major airport is Ontario (ONT), saw about a 25 percent drop in house prices from 2007 to 2008 and about a 2 percent drop in the fraction of the population that was living in the same house as it was one year earlier from 2008 to 2009.
However, if we look at people who move but who don’t go very far, we find the opposite. The figure below shows the change in the fraction of the population that is still in the same county as a year ago but not in the same house. Here the pattern is reversed; MSAs where prices fell the most from 2007 to 2008 seem to show the biggest increase in the fraction of people who moved.
Taken together, the last two figures suggest that MSAs that experienced large price declines experienced a drop in the fraction of the population that stayed in the same house, but that drop was driven by people who moved but stayed in the same county. This pattern seems to be consistent with a higher rate of foreclosure-induced moves in places where prices fell the most. However, as shown in the first figure, the fraction of the population that stayed in the same house over the past year has increased by more than 1 percentage point since 2006.