There are two kinds of behavior that potentially explain homeowners’ reluctance to move in face of a fall in the value of their houses. First, when a person is underwater on the mortgage, which means that thevalue of the house has fallen below the amount owed on the mortgage, the homeowner may hesitate to move. An underwater homeowner has to come up with extra cash to pay off the lender, or has to default on the loan. Default can be undesirable for a variety of reasons, most obviously its harmful effect on the credit record.
In addition, an underwater homeowner may find it difficult to satisfy the down payment requirements for a new mortgage, if she decides to move and buy another house.
Therefore, whether or not negative equity reduces households’ mobility depends on the relative strength of those two competing forces.
In some parts of North Las Vegas, more than 80% of homeowners have plunged “underwater,” meaning they owe more on their mortgages than their properties are worth — a stunning concentration of aborted plans and upended lives.
Mobility in search of new opportunity has long been a cornerstone of the American economy, much the way homeownership has long offered a path to firmer financial footing. But the housing bust has left tens of thousands of homeowners across Nevada essentially trapped.
They’re considered the new normal here. They turn down higher-paying jobs elsewhere because they can’t move. They tidy the yards of houses left vacant by foreclosure. They realize it’s unlikely their children will receive tidy inheritances from the sale of their suburban homes.
When they look about their neighborhood, they question things they never questioned before. Are dead plants a sign that someone forgot to water? Or did the water get turned off? Does a garage sale mean more neighbors are about to bail?
Most Las Vegas homes won’t be worth what the homeowner paid on it until after they die.
No state is more underwater than arid Nevada, with about two-thirds of borrowers holding such mortgages, according to CoreLogic, a Santa Ana research firm