Minneapolis Fed working paper finds that homeowners with negative equity are not less likely to move.

The conventional wisdom had been that the housing market was sluggish because so many homeowners couldn’t move because they had negative equity in their current homes.

This study found that homeowners with negative equity were in fact slightly more likely to move.

I assume, of course, that many of those with negative equity who moved ended up moving via short sales or foreclosures which hurt their ability to borrow money.

So, it appears to me that it was not so much that people aren’t moving because of negative equity but that many who do move via short sales and foreclosures end up with damaged credit and aren’t able to borrow the money need to buy another house, at least not immediately.

The end result is the same – a sluggish housing market – but the mechanism is a bit different.

I think some other obvious culprits in the sluggish housing market are;

  • Fears that home prices may continue to fall
  • Lower net worth due to falling home prices (the ability to borrow may be reduced even for homeowners with positive (but reduced) equity)
  • High unemployment means less income
  • High unemployment means higher job insecurity so people are less likely to change jobs
  • Job creation has been sluggish so fewer people are moving to take newly created jobs
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