This paper provides updated estimates of the impact of three financial frictions negative equity, mortgage lock-in, and property tax lock-in – on household mobility. We add the 2009 wave of the American Housing Survey (AHS) to our sample and also create an improved measure of permanent moves in response to Schulhofer-Wohl’s (2011) critique of our earlier work (Ferreira, Gyourko and Tracy (2010)).Our updated estimates corroborate our previous results: negative equity reduces household mobility by 30 percent, and $1,000 of additional mortgage or property tax costs reduces household mobility by 10%-16%. Schulhofer-Wohl’s finding of a slight positive correlation between mobility and negative equity appears due to a large fraction of false positives, as his coding methodology has the propensity to misclassify almost half of the additional moves it identifies relative to our measure of permanent moves. This also makes his mobility measure dynamically inconsistent, as many transitions originally classified as a move are reclassified as a non-move when additional AHS panels become available. We conclude with directions for future research, including potential improvements to measures of household mobility.

A long literature in housing economics has noted that a rise in mortgage rates could ‘lock-in’ an owner to her current house, thereby slowing or preventing a permanent move to a new residence if mortgage interest rates had risen sufficiently to make the new debt service payment unaffordable (Quigley (1987, 2002)). Other financial frictions, such as the one arising from California’s Proposition 13 property tax rules, would have similar effects on household mobility (Ferreira (2010)). Negative equity, by which we mean the current value of the house is less than the outstanding mortgage balance, also could reduce household mobility if the owner does not have enough liquidity to pay off the full loan balance, which is required for a permanent move and sale of the property if the borrower is to avoid the cost of a default (Stein (1995), Chan (2001), and Engelhardt (2003).