Americans slow to move into new homes

Pricey broker fees, transaction costs, mortgage fees drag on household mobility, chart shows

Mobility rate based on percentage of total population (Credit: Business Insider)
Mobility rate based on percentage of total population (Credit: Business Insider)

The household mobility rate, or the percent of the population that moves into a new home in a year, has been in a long-term decline. This trend has been unfavorable for the housing market, which in turn has been a drag on GDP.

According to Michelle Meyer at Bank of America Merrill Lynch, the household mobility rate has been slowing since the mid-1980s.

A key driver of this trend has been the rise of homeownership in the 1990s. Homeowners are less like to move than renters. It’s much more expensive for homeowners to move because of broker fees, transaction costs, mortgage fees, insurance and so on.

From 2000 on, aging population and changes in the labor market have also been negative for household mobility.

There Are Two Reason Why Household Mobility Could Improve

In the short run, two factors could cause household mobility to pick up: the decline in homeownership rates and rising home prices.

“The homeownership rate has plunged from the peak in late 2004, and we think the risk is that it continues to slide,” writes Meyer. “Homeowners are less mobile than renters — from 2012 to 2013, 25% of renters moved compared to 5% of owners. The shift toward greater renting should boost the aggregate mobility rate.”

Sign Up for the undefined Newsletter

Negative equity, in which a borrower owes more on their mortgage than their home is worth, also reduces household mobility. “As home prices continue to rise, a growing number of homeowners will move into positive equity, allowing for greater mobility,” she writes.

Longer-Term Trends Remain Unfavorable

In the long run however, an aging population and the end of ultra-low mortgage rates will curb household mobility.

“The greatest propensity to move is when people are in their late 20s. The mobility rate steadily declines thereafter as people age,” according to Meyer.

“We should also be concerned that mortgage ‘lock-in’ will reduce mobility over the medium term. We expect rates to head higher in the coming years, increasing mortgage payments. It will be difficult for those homeowners who bought or refinanced to a fixed-rate mortgage over the past few years to give up the record low rate.”

Meyer told Business Insider in an email interview that, in the short-run, an uptick in household mobility will help boost residential investment as a share of GDP. In the longer-term, however, “residential investment may struggle to return to the historical average of GDP, suggesting lower multipliers from housing to the rest of the economy going forward.”