Moving to Opportunity? The Geography of the Foreclosure Crisis and the Importance of Location

68 Pages Posted: 2 May 2018 Last revised: 3 Dec 2019

See all articles by Christos Makridis

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Michael Ohlrogge

New York University School of Law

Date Written: December 1, 2019

Abstract

Over six million households experienced foreclosure during the financial crisis. Where did they move, how did they fare, and why? First, we create a new longitudinal dataset between 2006 and 2011 from households' date of foreclosure to their relocation. Despite significant heterogeneity in mobility outcomes, we find that individuals move to, on average, higher quality locations. However, these locations are sometimes worse than what a household would have chosen at random, on average, within the same state. Second, to investigate the source behind these plausibly suboptimal moves, we quantify the contributions of three different hypotheses: (i) local labor market conditions, (ii) local composition effects, and (iii) state foreclosure institutions towards mobility outcomes. Third, we find that the return to moving to another county following foreclosure, relative to census tracts within-county, is 2.3%. These results suggest that, while individuals who moved are better off for it, labor market frictions play an important role in moderating reallocation over the business cycle.

Keywords: foreclosure, financial crisis, mobility, unemployment

JEL Classification: J61, J24, R31, R51

Suggested Citation

Makridis, Christos and Ohlrogge, Michael, Moving to Opportunity? The Geography of the Foreclosure Crisis and the Importance of Location (December 1, 2019). Available at SSRN: https://ssrn.com/abstract=3162905 or http://dx.doi.org/10.2139/ssrn.3162905

Christos Makridis (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Michael Ohlrogge

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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