Friday, May 14, 2010

Housing Mobility: Interesting Quote and Semi-rant

From USA today, via CalculatedRisk:
"This is the absolute worst time to lose our residential mobility," says Richard Florida, a professor of U.S. urban theory at the University of Toronto. "It's important for people to move to where the new opportunities are, because that is the cornerstone of our idea-driven economy."

CR goes on to note that part of the reason for the lack of mobility is that lots of people are underwater on their homes... which is true, but not the only factor. I'd venture to say that another significant reason why people are reluctant to move is that many people know that there's significant pending price declines in he housing market, and don't want to make a move now because they know prices are going to be lower after the delayed foreclosures work their way through the system in the next few years. This is less likely to be preventing people from moving for employment if they are desperate (after all, you can always rent), but would be a significant drag on people who might otherwise move for better opportunities or less competition, or in response to other subjective factors.

Speaking of housing prices, I had another interesting realization today: government debt makes housing less affordable for everyone. This may not come as a shock to anyone well-versed on economic causality, but might surprise some people who don't regularly appreciate how destructive to the American economy massive surges in government debt are. In this case, debt leads to the perception of future inflation (as the government prints more money to devalue its debts rather than pay them), which causes investors to look to both borrow money, and acquire assets which hold their real value. Aside from precious metals, one of the best asset classes historically for a hedge against currency devaluation is housing/land. This is a problem because perception drives investment allocation, artificially increasing the demand (which naturally increases prices). If the perception was that the currency value would remain stable, housing would be a much less attractive long-term investment (relative to just, say, money), which would in turn act to reduce prices closer to actual consumption/use value.

Incidentally, that's also a factor which causes speculative swings in other asset prices, such as oil, food futures, and precious metals. It also drives volatility in the stock market, and helps decouple stock prices from fundamental valuations (as people buy stock to hedge against currency devaluation). As even novice economic theorists could observe, all these price distortions and speculation are bad for business, bad for the economy, bad for individual people, and bad for the country. Think about that the next time Comrade Presidente and the Party decide to print another $800B for their insider friends.


  1. Why would an anticipated decrease in prces make someone not want to move?

  2. If you are anticipating a pending decline in prices, you will be reluctant to purchase a house in a new area. The opportunity cost of purchasing a home (ie: RE commission and cost of relocation) make moving costly. Normally people anticipate making up the cost through appreciation, hence the adage that if you're planning on staying more than five years, it's more cost-efficient to buy. However, anticipated declines change that equation dramatically: nobody wants to be underwater from day one, and/or lose a large percentage of their down-payment immediately, and/or find themselves unable to move again as necessary. Hence, psychologically, it limits mobility for many people.

    For renters, of course, there's very little impact, just the cost of moving and the uncertain job environment across the country. For people with an investment in housing, though (for example, as a hedge against inevitable currency devaluation), it can be pretty discouraging.

  3. If they're currently in a house, though, isn't it dropping just as much. So if you have a house dropping in Chicago, why do you care if you sell it and buy one dropping in Minneapolis?

    If it's b/c you're upside down on your house, that's something that happened in the past. I'm trying to understand why anticipated future decreases would cause someone not to move.

  4. It's much easier to sit in a house that you own which might decrease in value than to buy a new house when you think the market is going to go down. Part of it is financial: why take the hit for moving on top of losing asset valuation also? You may also have credit difficulty even if you're not underwater: if you don't have enough equity in your current residence, you may not be able to qualify for as high of a loan. A lot, though, is just psychological: you can justify (to some extent) losing equity as the trade-off for the tax advantages and hedge against inflation, but you can't justify doing the same at a larger scale, and you don't want to trade-down if/when you move.

    I speak from some experience, as I'm more/less in that position (aside from the feeling pressure to move for job reasons). If I needed to relocate today for work I could, but I wouldn't feel good about it, and would struggle to decide between owning and renting. I'd lean toward renting, but it's a tough call: when the inevitable currency devaluation starts ramping up, you don't want to be the one stuck with dollars in a bank, waiting for the right buying opportunity as your wealth evaporates.