How Does Home Equity Affect Mobility?
Office of the Comptroller of the Currency (OCC)
Government of the United States of America - Risk Analysis Division
November 2, 2012
This paper investigates the relationship between home equity and household mobility. We first develop a simple theoretical model that suggests a non-unidirectional mobility-equity relationship. We test this hypothesis using a dataset from Florida that allows us to construct home equity measures that are more accurate than those that have been used in previous work and permits us to disentangle mortgage default-induced mobility from other types of mobility. Our empirical results reveal a U-shaped relationship between equity and mobility; at moderate levels of mortgage debt, a decline in equity reduces the propensity to sell a home, whereas at very high levels of mortgage debt, an increase in debt increases mobility through the foreclosure channel. Although default-induced mobility did increase following the financial crisis, this increase did little to o¤set the substantial decline in voluntary moves due to home equity lock-in; we find that on net, household mobility declined by roughly 25 percent in Florida because of reductions in equity.
Number of Pages in PDF File: 33
Keywords: Mobility, Negative Equity, Mortgage Default
JEL Classification: R23, J61working papers series
Date posted: November 3, 2012 ; Last revised: August 17, 2013
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