notes oct 14 2008
October 14, 2008 § Leave a comment
lafire and banks..
11:43 negative equity, from Calculated Risk via NY Fed.
Having negative equity in one’s home reduces mobility rates … by nearly 50 percent from its baseline level according to our estimates. That the net impact of negative equity is to reduce, not raise, mobility certainly does not mean that defaults and foreclosures are insignificant consequences of this condition. However, it does signify that the preponderant effect is for owners to remain in their homes for longer periods of time, not to default and move to another residence.
Finally, reduced mobility has its own unique set of consequences which have not been clearly identified or discussed in the debate about the current housing crisis. Substantially lower household mobility is likely to have various social costs including poorer labor market matches, diminished support for local public goods, and lesser maintenance and reinvestment in the home.
“Those banks have been nationalized, overtly or not overtly, which is something that hasn’t happened before in the history of developed countries,” Volcker said. “How to wean them from government support? That is the challenge of the future.”