Tags: Boston | Fed | Housing | Jobs

Boston Fed: Housing Impact on Jobs ‘Negligible’

Monday, 13 February 2012 08:11 AM

As markets digest the blockbuster $25 billion mortgage deal between the states and the biggest banks, the Boston Fed is noting that underwater mortgages have not been a significant driver of national unemployment.

U.S. policymakers worry that negative equity — owing more on a house than it’s worth — is forcing people to stay put when jobs are available in other towns or states. That, politicians argue, gives the government cause to force principal reductions on loans in order to bolster the recovery.

Yet the facts don’t back it up, say the Boston Fed’s Alicia Sasser Modestino and Julia Dennett, in a working paper released by the bank.

“Indeed, the widespread drop in house prices since 2007 has increased the share of homeowners who are underwater on their mortgages. At the same time, migration across states and among homeowners has fallen sharply,” the authors write.

However, after studying IRS data between 2006 and 2009, the researchers argue that the impact on the national employment rate from “house lock” turns out to be “negligible.”

The numbers show state-to-state migration rate fell by 0.05 percent, or between 110,000 and 150,000 fewer individuals making a move than would otherwise occur in a healthy housing market.

“Assuming that all of these discouraged migrants were job-seekers who were previously unemployed before relocating and then found a job in their new state would reduce the nation's unemployment rate by at most one-tenth of a percentage point in a given year,” the researchers write.

If true, that would have translated into a 2009 unemployment rate of 9 percent vs. 9.3 percent.

“Recognizing that not all state-to-state migrants are job-seekers, not all job-seekers were previously unemployed, and not all previously unemployed job-seekers will successfully find work in their new location yields an unemployment rate that is virtually unchanged from the actual one that prevailed from 2006 to 2009,” they conclude.

Any impact from the mortgage deal will be slow in coming. It doesn’t apply, for instance, to loans held or guaranteed by the federal lending agencies Fannie Mae, Freddie Mac or Ginnie Mae. The five banks in the deal control just 7.3 percent of all single-family home loans, reports Inside Mortgage Finance.

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Monday, 13 February 2012 08:11 AM
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