A study released last week by the Federal Reserve Bank of Cleveland shows that jobless homeowners whose mortgages are underwater do not have any issue with relocating to find a new job.
According to the study, the recession era saw the prevalence of what it calls the “locked-in effect”, wherein underwater borrowers, or those who owe more on their mortgages than the value of the property, refuse to relocate for employment purposes. Cleveland Fed economist Yuliya Demyanyk posited in the study that unemployed homeowners with negative equity would, if a job is available in another part of the country, likely “accept the job because the benefits of earning a higher income outweigh the costs associated with selling an underwater home.”
Demyanyk added that underwater homeowners are actually more likely to take the plunge and move to another region than homeowners with positive equity, an interesting observation considering the potential loss of money when selling a home with negative equity.
The study involved the gathering of credit report data to find out whether homeowners, particularly those who are underwater on their mortgages, have relocated or not. The Cleveland Fed also worked with a theoretical model to simulate how homeowners would act in specific situations.
These situations involved deciding whether homeowners would be willing to move elsewhere if it means gainful employment and a steady paycheck, and if such benefits outweigh the possibility of losing money by selling an underwater piece of real estate.