Immobilized Americans cause economic weakness and slow housing sales
Americans are moving less than ever before causing a weaker economy and slower home sales.
America has long benefited from a mobile population capable of moving to take new jobs and delivering their skills and expertise where it’s needed most. Over the last 25 years, Americans have been moving less, and the mobility rate continues to hit new lows. Some of this may be a sign of changing lifestyle choices, but with 9.7 million Americans trapped in their homes because they owe more on their mortgage than the house is worth, many Americans are immobilized by the banks, and that is a drain on our economic efficiency.
Mamta Badkar, Jul. 10, 2014, 5:41 AM
The household mobility rate, or the percent of the population that moves into a new home in a year, has been in a long term decline. This trend has been unfavorable for the housing market, which in turn has been a drag on GDP.
According to Michelle Meyer at Bank of America Merril Lynch, the household mobility rate has been slowing since the mid-1980s,
A key driver of this trend has been the rise of homeownership in the 1990s. Homeowners are less like to move than renters. It’s much more expensive for homeowners to move because of broker fees, transaction costs, mortgage fees, insurance and so on.
A study from 2013 showed a strong correlation between high home ownership rates and high levels of unemployment in industrialized economies, partly due to the lack of mobility of homeowners.
From 2000 on, aging population and changes in the labor market have also been negative for household mobility.
Retirees don’t like to move. Most people’s vision of a happy retirement is to live in the same house until they die. Once people retire, they have no need to move for employment opportunities, and by that time in their lives, they generally have deep roots in a community, or they move to a retirement community where they bond with others their own age.
There Are Two Reason Why Household Mobility Could Improve
In the short-run two factors could cause household mobility to pick up: the decline in homeownership rates and rising home prices.
“The homeownership rate has plunged from the peak in late 2004, and we think the risk is that it continues to slide,” writes Meyer. “Homeowners are less mobile than renters — from 2012 to 2013, 25% of renters moved compared to 5% of owners. The shift toward greater renting should boost the aggregate mobility rate.”
Negative equity, in which a borrower owes more on their mortgage than their home is worth, also reduces household mobility. ” As home prices continue to rise, a growing number of homeowners will move into positive equity, allowing for greater mobility,” she writes.
Analysts seem to think house prices will rise forever and everyone who’s currently underwater will have equity again soon. That probably isn’t going to happen. Most markets, including ours, have hit the ceiling of affordability at price levels far below peak pricing from the housing bubble, and as rising interest rates harm affordability, the prospect of steadily rising prices is questionable at best.
Longer-Term Trends Remain Unfavorable
In the long run however, an aging population and the end of ultra-low mortgage rates will curb household mobility.
The aging population will curb mobility, but ultra-low mortgage rates will not — at least not in the way economists think. The imobility will not be due to homeowners being unwilling to surrender their low-rate mortgages. Rising interest rates will hurt mobility because it will prevent the appreciation necessary to lift loanowners out of their debtor’s prisons.
“The greatest propensity to move is when people are in their late 20s. The mobility rate steadily declines thereafter as people age,” according to Meyer.
“We should also be concerned that mortgage ‘lock-in’ will reduce mobility over the medium term. We expect rates to head higher in the coming years, increasing mortgage payments. It will be difficult for those homeowners who bought or refinanced to a fixed-rate mortgage over the past few years to give up the record low rate.”
Meyer told Business Insider in an email interview, that in the short-run an uptick in household mobility will help boost residential investment as a share of GDP. In the longer-term however “residential investment may struggle to return to the historical average of GDP, suggesting lower multipliers from housing to the rest of the economy going forward.”
The weakness in the economy will also be a reason fewer Americans move. Millennials are living at home more than generations past, not because they want to, but because they can’t find jobs — no job, no reason to move — and no ability to move either. When the economy picks up, we will likely see an uptick in mobility as Millennials move out of their parents homes and rent. As renters, they will move more frequently to take job opportunities as their careers advance; however, they probably won’t become homeowners for many years, and most Millennials won’t qualify for a mortgage until 2019 anyway.
Mobility is most often a sign of lifestyle choices of an aging population, but the current lull in mobility is partly due to the weak economy that isn’t producing enough jobs, and partly due to the millions of underwater homeowners that couldn’t move even if they had a job opportunity. The latter reason is most concerning because if the most qualified job candidate likely to add most value to a company is unable to move to take the job, economic efficiency suffers. Multiply that problem by 9.7 million, and it impacts the whole economy.