Thursday, April 23, 2009

As More Homes Fall Underwater Trapped Americans Cannot Migrate

Not that we have a robust job market, but one of the trends for many years has been the ability of Americans to easily move across the country when need be as certain geographies went into state or regional recessions, while others held up. Best I can find certain northern plain states like North Dakota seem to be doing ok, or you have the D.C. area (federal government!) - so the pickins' are relatively slim even if you could move. But we have some problems - namely my long held prediction that 1 in 4 American homeowners will be underwater by time all is said and done is on the horizon [Mar 9, 2009: One in Five Houses Underwater] Underwater people are prisoners in their home if they don't have the savings to bring to closing to "get out of jail". And we already know the national crisis that is our lack of savings.

In my piece on why the housing "recovery" still has multiple iterations to go through [Apr 8: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces. Housing Bubble 2.0? (Not)] I wrote

First, and I lost the story somewhere in my archives, but the United States is infamous for inward migration - people moving from one part of the country to another for work. So even when new (government created transfer payment) type of work is created - many people will have a very difficult time moving to it. Because many are trapped in underwater homes.

Well, I found that piece finally in my archives, and the New York Times also has a piece out yesterday.... once more, I cannot stress enough this is a structural (not cyclical) situation we are going through and just like people were going off the wrong playbook going into the Great Recession, we are still in denial about the magnitude and duration of issues ahead of us.

WSJ: U.S. Migration Falls Sharply
  • Migration around the U.S. slowed to a crawl last year, especially for this decade's boom towns, as a weak housing market and job insecurity forced many Americans to stay put. Demographers say the dropoff in migration, shown in Census data to be released Thursday, is among the sharpest since the Great Depression. It marks the end of what Brookings Institution demographer William Frey calls a "migration bubble."
  • As asset values rose fairly steadily in the past decade, Americans young and old moved around the country in search of jobs or better weather. In many cases, people living in higher-cost housing markets such as San Francisco and New York cashed in their real-estate winnings and moved to outlying counties, or to states like Florida and Nevada, hoping to find a cheaper house and pocket the difference.
  • Migration typically slows during recessions. But in past downturns, the slowdown has been more regional in scope, with workers fleeing weaker job markets for places where companies were still hiring. In the deep 1980s recession, for instance, laid-off auto workers fled the industrial Midwest for energy-rich states in the South with more plentiful jobs. What's unique this time is migration has slowed almost everywhere. The sharpest year-to-year changes were among what demographers call "domestic migrants," people who moved within the U.S.
  • Older metro areas such as New York and San Francisco, which have seen residents move to faster-growing areas, are now losing fewer people. Cities in the formerly hot housing markets such as Nevada and Florida are seeing fewer arrivals and, in some cases, more people moving out than in.
  • The Census data show that the biggest falloffs were in the worst housing markets. In 2007-2008, the Phoenix area gained a net 51,000 domestic migrants, about half as many as two years ago. Las Vegas increased by a net 14,000 domestic migrants, two-thirds fewer than two years ago. California's Riverside-San Bernardino metro area, a once-booming market that has been hammered by foreclosures and job losses, lost domestic migrants for the first time since 1995-1996.
  • The migration slowdown, if it persists, could further delay the economic recovery in depressed housing markets such as Phoenix and Las Vegas. These places generally have a larger amount of unsold homes, and a disproportionate share of the economy is dependent on construction and other real estate-related trades.
That story was from a month ago - here is the latest...

New York Times: As Housing Market Dips, More in US Staying Put
  • Stranded by the nationwide slump in housing and jobs, fewer Americans are moving, the Census Bureau said Wednesday. The bureau found that the number of people who changed residences declined to 35.2 million last year, the lowest number since 1962, when the nation had 120 million fewer people.
So adjusted for population growth the % of people moving is far worse than 1962.
  • It suggests that Americans were unable or unwilling to follow job opportunities around the country, as they have in the past.
I cannot tell you how often in the local paper I have read over the past few years how families have had to split apart so one spouse can work in another state while the other is trapped in home OR people move to another state... rent there, while continuing to make payments on their empty home, and them have to boomerang back when they see selling their home at a price that allows them to escape is hopeless.
  • “The thing that would be of deeper concern is if job-related moves are getting suppressed and workers are not getting re-sorted to the jobs that best use their skills,” he said. “As the labor market started to improve, if mobility stays low, you can worry about the allocation of workers.”
  • ... the recession is so broad-based it’s not as if you can pull up stakes and move to a part of the country that’s growing.”
  • Moves between states plunged the most, to half the rate recorded at the beginning of this decade.
  • “It does show that the U.S. population, often thought of as the most mobile in the developed world, seems to have been stopped dead in its tracks due a confluence of constraints posed by a tough economic spell,” said William H. Frey, a demographer with the Brookings Institution.
Now the great irony is the great foreclosure boom will HELP not HURT this issue. Whose hurting the situation? The government's ardent push to keep people in hopelessly underwater assets bought at hopelessly bubble price levels.

I believe once the housing market (nationally) stabilizes - and prices level off a LOT of people are going to finally face the music on how little their home is worth versus what they (still) believe. Even with 4.7% mortgage rates, or indeed Ben Bernanke's push to 4.5% or 4.0% inflating prices over the 'natural price'. When this realization happens - you will see a whole new class of "walk aways" - after all when new housing down the block is going for 30-50% less than your mortgage... it's the 'sensible' thing to do, especially in our new national ethos of "your decisions are not your fault; the evil lender caused you to get into that mortgage... or into those credit cards... or to buy that 3rd car... or boat... or HDTV..."

We're still in denial on what exactly is going on out there...

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