Do falling home prices distort the labor market, as Louis Uchitelle argues in today’s New York Times? That is, are workers really generally unwilling to sell their homes — because home prices have fallen — even if failure to do so keeps these workers from moving to locations where employment prospects are brighter? My initial instinct is to doubt the severity of this problem — as this first of two letters that I sent today to the NYT explains:
Louis Uchitelle reports
that falling home prices keep workers stuck in their homes, unwilling
to sell and, hence, unwilling to move in order to take better jobs in
different locations ("Unsold Homes Tie Down Would-Be Transplants,"
April 3). Perhaps; but I have my doubts.
While it’s true that
people prefer to sell their homes at high prices, it’s also true that
people prefer to buy their homes at low prices. So why should people’s
disappointment at being unable to sell their homes at prices as high as
they once thought possible not be offset by their happiness at being
able to buy new homes at prices lower than they once thought possible?
But my respect for many of the findings of behavioral economists is sufficiently high to cause me to grant the possibility that this phenomenon is real. The endowment effect and loss-aversion might well make workers unusually resistant to sell their homes at prices lower than they’ve become accustomed to suppose that they could fetch for their homes. So perhaps the phenomenon identified by Uchitelle is real.
When I sent the above letter to my list of letter-recipients that I keep, I prefaced the letter with the following remark:
Even if this phenomenon is
real (perhaps it’s one of the anomalies identified by behavioral
economics), what does it say about the prosperity of America’s workers
if such considerations stymie their willingness to move in order to get
better jobs?
A few minutes after I sent this letter to my list, NYT science writer John Tierney wrote me back expressing his agreement with this prefatory comment. John’s e-mail prompted me to write and send this second letter:
Louis Uchitelle reports
that falling home prices keep workers stuck in their homes, unwilling
to sell and, hence, unwilling to move in order to take jobs in
different locations ("Unsold Homes Tie Down Would-Be Transplants,"
April 3).
But far from being evidence in support of your
incessantly expressed belief that American workers today are in
desperate shape economically, this phenomenon instead suggests that
American workers are doing very well indeed. Persons in miserable
economic straits would not allow loss-aversion on their real-estate
holdings to prevent them from taking better jobs.Sincerely,
Donald J. Boudreaux
