Less worker mobility [due to negative equity] is kind of like arteriosclerosis of the economy. It lowers the overall growth potential.
This will not only impact the earning potential of these households, but this could also impact the performance of various companies. A significant majority of households that migrate have incomes above the median – and negative equity situations will limit the ability of companies to transfer these senior employees. Less household mobility could be a signficant drag on the economy for several years.
The post references a paper on Housing Busts and Household Mobility (PDF), which discusses the impact of the current housing bust on mobility:
Default-induced moves always are the first mobility-related impact observed during a downturn, but they need not be the last or the most importantly economically. In fact, much previous research indicates that factors such as falling home prices or rising interest rates that typically are associated with housing market declines can ‘lock-in’ people to their homes—reducing, not raising mobility.
The paper concludes:
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.
We will see how this plays out in the US economy in years to come. It’s a good reminder that mobility matters – which is why we’re working to increase it.