Real Estate News
Unable to Move, Struggling Homeowners Are Also Unable to Find Jobs
(Bloomberg) — Raul Lopez, laid off from three construction jobs since October 2007, is focusing his search for work near Antioch, California, because his $392,000 mortgage is almost triple the price his home there would sell for today.
"If it wasn't for the house, I'd probably move closer to Oakland, Hayward, San Leandro, places where there are jobs," said Lopez, 36, who is married with four daughters.
The ability to relocate for employment, which helped the U.S. recover quickly after previous deep recessions, is the latest victim of the housing bust. About 12.5 percent of Americans moved in the year ended March 2009, the second-lowest ever, estimates Brookings Institution demographer William Frey, after a 60-year record low of 11.9 percent the previous year.
Local moves may rise "a little bit" in the 12 months that end this March, with long-distance migration "staying flat," Frey said. "Both will be below normal levels from earlier in the decade."
Some households are staying put because they owe more on their mortgages than their properties are worth; others have trouble selling houses in depressed areas, economists say. The S&P/Case-Shiller composite index of home prices in 20 U.S. metropolitan areas was down 29 percent in October from its July 2006 peak.
"One of the hallmarks of America's labor market is a high level of mobility," said Joseph Stiglitz, a Nobel Prize-winning economist, in a Jan. 3 interview in Atlanta, where he was speaking to an economics conference. "We are about to lose that."
The stagnant workforce may raise the long-term trend rate for unemployment by 1 percentage point and lower economic growth 0.3 percent a year through 2012, said Michael Feroli, an economist in New York for JPMorgan Chase & Co. It has already contributed to keeping the jobless rate as much as 1.5 percentage points higher than would have been suggested by the depth of the recession, Peter Orszag, director of the U.S. Office of Management and Budget, estimated in July.
The U.S. economy shrank 3.8 percent in the 12 months that ended in June, the worst performance since the 1930s. Unemployment reached a 26-year high of 10.2 percent in October before sliding to 10 percent in November. The rate stayed at 10 percent in December, according to the median estimate of 72 economists in a Bloomberg News survey. The Labor Department will release the data on Jan 8.
Pharmaceutical and biotechnology companies have lost potential employees in the past two years as candidates are stuck with houses worth less than their mortgages, said Deborah Coogan Seltzer, a vice president in Atlanta for the Dallas-based executive search firm Pearson Partners International. Some prospects also worry it may take a year or more to sell their homes, even if they have equity in the properties, she added.
"It's a constant factor," Seltzer said. "Conservatively, in at least 70 percent of the searches I've worked on in the last 12-to-18 months at least one or two candidates have withdrawn from the process after they've investigated their real-estate situation."
Some companies are allowing recent hires to stay where they are and use a combination of telecommuting and traveling, said Kevin Kelleher, president and chief executive officer of Danbury, Connecticut-based Cartus Corp., which specializes in relocation.
Employers and their prospects are "thinking about assignments or commuting policies rather than picking up the family and moving on," he said.
Seltzer and Kelleher declined to provide names of specific companies.
The ability and willingness of workers to relocate has contributed to labor-market recoveries following recessions that ended in March 1975 and November 1982, said Mark Zandi, chief economist at West Chester, Pennsylvania-based Moody's Economy.com. The unemployment rate fell 1.6 percentage points to 7.4 percent in May 1976 from a year earlier and dropped 2.5 percentage points to 8.3 percent in December 1983 from the previous December.
While some economists say the recession that began in December 2007 may have ended last summer, unemployment will fall only 0.8 percentage point to an average of 9.2 percent in 2011, according to a December Bloomberg News survey of 46 economists.
"You don't have to be a rocket scientist" to know that unemployment will be higher and "the noninflationary speed limit, or what economists call the potential growth rate of the economy, is going to be lower as a result of the housing-related decline in labor mobility," David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto, said in a Jan. 4 telephone interview.
Almost 10.7 million homes, or 23 percent of all mortgaged properties, were worth less than the debt owed on them at the end of the third quarter, according to a Nov. 24 report from First American CoreLogic. An additional 2.3 million mortgages are approaching "negative equity" as loan defaults mount nationwide, the Santa Ana, California-based real-estate research company said.
Sixty-five percent of Nevada homeowners owed more than their houses were worth, the highest rate in the nation, according to the report. Arizona ranked second, at 48 percent, followed by Florida, Michigan and California.
States that grew the fastest during the 2002-2006 housing bubble, including Florida and Nevada, are now experiencing reversals in population trends. The number of people in Florida, where unemployment is 11.5 percent, fell 58,294 in the 12 months ended April 2009, the first decline since 1946, the University of Florida Bureau of Economic and Business Research estimated in August.
More people might have left if they had been able to sell their homes, said Jack McCabe, president of McCabe Research & Consulting in Deerfield Beach, Florida, which specializes in real estate.
"Loan modifications have been of insignificant help," he said.
Through November, U.S. lenders had permanently renegotiated about 31,000 of the 4 million mortgages targeted for relief by the Obama administration's foreclosure-prevention plan.
Housing woes have exacerbated a decline in worker mobility that began in 1951, when 21 percent of Americans moved, according to the Census Bureau. More families now depend on two incomes, which makes moving more complicated, said Peter Francese, a demographic-trends analyst in Exter, New Hampshire, for New York-based advertising agency Ogilvy & Mather Worldwide.
The aging U.S. population also reduces mobility, he said. The largest age group is 45- to 55-year-olds and the fastest- growing segment is 55- to 65-year-olds, both of which have established family and social networks that complicate relocation, Francese said.
Out-of-state moves, usually associated with job changes, remained at a record low 1.6 percent of the population for a second year in the 12 months ended March 2009, Brookings' Frey estimates.
Anecdotal evidence suggests an even lower rate for the full year. Shipments handled by movers and paid for by individuals in the first half dropped 18 percent from January-June 2008, while employer-paid moves fell 27 percent, according to the American Moving & Storage Association, an industry trade group based in Alexandria, Virginia.
"This is our first national slump caused by a housing bubble and that ties down workers," said Nobel Prize-winning economist Paul Krugman in a Jan. 4 interview. "It is a transitory thing, but transitory can mean several years."
To contact the reporters on this story: Steve Matthews in Atlanta at firstname.lastname@example.org; Mike Dorning in Washington at email@example.com; Daniel Taub in Los Angeles at firstname.lastname@example.org