Moving to opportunity? The geography of the foreclosure crisis and the importance of location

Author:

Makridis Christos A12ORCID,Ohlrogge Michael3

Affiliation:

1. MIT Sloan School of Management, Cambridge, MA, USA

2. Arizona State University, Tempe, AZ, USA

3. New York University, New York, NY, USA

Abstract

Abstract Over 6 million households experienced foreclosure during the financial crisis. Where did they move, how did they fare and why? First, we create a new longitudinal dataset between 2006 and 2011 from households’ date of foreclosure to their relocation. Despite significant heterogeneity in mobility outcomes, we find that individuals move to, on average, higher quality locations. However, these locations are sometimes worse than what a household would have chosen at random, on average, within the same state. Second, to investigate the source behind these plausibly suboptimal moves, we quantify the contributions of three different hypotheses—(i) local labor market conditions, (ii) local composition effects and (iii) state foreclosure institutions—toward mobility outcomes. Third, we find that individuals who move counties relocate to areas with 2.3% higher income, relative to those moving across census tracts in the same county. In sum, while our results suggest that the average foreclosed household ‘moved toward opportunity’, labor market frictions can play an important role in mediating the reallocation of labor over a business cycle.

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics,Geography, Planning and Development

Reference43 articles.

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