The hallmark of the American labor market, and consequently the wider economy, has long been the mobility of our work force.
From "going West" to "teleworking," we go where the jobs are.
Unfortunately the uniquely disastrous state of the current housing market is changing all that.
One in four homeowners with a mortgage are now "underwater" on that mortgage; their home is worth less than their debt.
"Mobility deteriorates when you're under water because you can’t get out from under the house without bringing money to the table," says Mark Fleming, chief economist at CoreLogic. "So, it reduces mobility, which has an impact on the labor markets and the efficiency of labor markets in terms of people finding new jobs and people moving to where the jobs are located."
Some borrowers, in good markets, can afford to rent out their homes and move to the new location. If the rent covers the mortgage payment, they can afford it, and many are doing just that. The trouble is, the bulk of those looking for new jobs are unemployed and likely behind on their mortgage payments already. For them, renting is probably not an option. Their last resort would be a short sale, where they negotiate with the bank to let them sell for less than the value of the loan, with the bank taking the hit.
That's not as easy as it sounds.
"Short sales do have consequences as well. It can really do impact to your credit report as well as just the overall ordeal of a short sale, which is not an easy endeavor," notes Bethesda, MD real estate agent Eric Murtagh, who just had a client opt to rent out rather than sell.
Of course the situation depends on your location. The rate of negative equity is higher in states like Florida, Nevada and California, which is also where the unemployment rate is very high.
"You have this coincidence of mobility issues also driving into the labor market. And so it means that people who would otherwise move to other states for jobs in, say construction, that they got laid off in Florida, they can’t do that because they’re underwater. So it’s a persistent drag on reducing the unemployment rate in those kinds of markets where high negative equity exists with high unemployment," says Fleming.
The good news is that a huge shift in the rental psyche nationwide, driven by a fear of still-falling home prices, is pushing more people to rent and consequently pushing rents higher; if you do need to rent your home, therefore, in much of the nation, you're going to do pretty well.