Negative Equity and Residential Mobility

The housing bust that began in 2006 reversed much of the price appreciation that occurred during the earlier part of the decade. Rising interest rates and falling house prices often raise concerns about negative equity and the possibility of "strategic defaults," where homeowners choose to foreclose on their homes because of a loss in equity. But to what extent do rising interest rates and negative equity impact residential mobility?

Using two decades of American Housing Survey data from 1985 to 2007, Fernando Ferreira, Joseph Gyourko, and Joseph Tracy find that that negative equity and rising interest rates serve to 'lock-in' owners to their homes— reducing, not raising mobility. The authors control for characteristics such as family size, educational attainment, marital status and family income. They find that having negative equity reduces the two-year mobility rate by four percentage points, a one-third reduction from the baseline mobility rate. Observing the effects of different levels of negative equity, the results suggest that mobility declines are larger when negative equity is higher. Additionally, higher monthly interest costs also reduce mobility; a $1,000 higher real annual mortgage interest cost is estimated to reduce mobility by 1.4 percentage points, or by about 12 percent of the baseline rate. Lower residential mobility has important implications for the labor market as households may not be able to move to access jobs, a particular concern given present employment conditions.

The authors warn that the results cannot simply be extrapolated into the future, but the findings do have implications for the recent concerns around the housing bust and the potential impact of negative equity on household well-being.

Ferreira, Fernando, Joseph Gyourko, and Joseph Tracy. (2010). Housing busts and household mobility. Journal of Urban Economics. July 2010. 68(1): 34–45.

The Education of Children Living in Public Housing

Most public housing developments in the U.S. are located in socially and economically disadvantaged neighborhoods, often with high concentrations of poverty and large shares of minority residents. Previous research has demonstrated that children growing up in these developments tend to have worse social and economic outcomes later in life, including poorer health and lower educational attainment. However, relatively little is known about the characteristics of the schools serving these children.

Amy Ellen Schwartz, Brian J. McCabe, Ingrid Gould Ellen, and Colin C. Chellman use data from the New York City Department of Education and the New York City Housing Authority to examine the characteristics of elementary and middle schools attended by students living in public housing developments in New York City. They find no large differences between the resources and teacher characteristics at the schools attended by students living in public housing and the schools attended by their peers living elsewhere in the city. Per-pupil expenditures at the typical school attended by students living in public housing are approximately 12 percent greater than expenditures at other schools. However, students living in public housing perform substantially worse on standardized math and reading exams than their peers living in other neighborhoods. In fact, students living in public housing earn lower scores on standardized tests, on average, than their schoolmates who attend the very same school but live outside of public housing.

This research suggests that the causes of the educational achievement gap that exists for students living in public housing go well beyond matters of school funding. The authors suggest that researchers and policy makers should continue to examine the community environments experienced by children and families living in public housing to identify factors outside of local schools that help to shape the observed performance gap.

Schwartz, Amy Ellen, Brian J. McCabe, Ingrid Gould Ellen and Colin C. Chellman. (2010). Public Schools, Public Housing: The Education of Children Living in Public Housing. Urban Affairs Review. September 2010. 46(1): 68-89.

Can Financial Education Change Savings, Investment, and Consumer Behavior?

Financial education for youth takes many different forms, and it's still not clear which delivery mechanisms and approaches work best. For example, some proponents favor better base education at an early age while others stress "just in time" education around specific financial decisions. But can financial education change financial behaviors?

Using a quasi-experimental approach, Bruce Ian Carlin and David T. Robinson studied the impact of Junior Achievement's Finance Park (FP) program on youth financial decision making. The FP program typically begins with classroom based personal financial management training, followed by active participation in a simulation in which students are assigned fictitious life situations and asked to create household budgets for these roles. Carlin and Robinson compared FP simulation performance among students that received classroom training versus those that did not receive classroom training. They found that students who received financial literacy training were 35 percent more likely than their untrained peers to successfully complete the budget balancing exercise. Students that received financial education were also more likely to make choices that are consistent with delaying immediate gratification in favor of investing in longer-term outcomes. Another finding was the impact of financial education on the utilization of financial advice; students who had attended financial training were significantly more likely to act on "just in time" decision support that was offered during the simulation. The authors suggest that this finding indicates that decision support and financial literacy training are complements, not substitutes.

While we still don't know which programs and delivery strategies are most effective, these findings suggest that financial education can lay a foundation for supporting consumers in financial decision making. Further research is required to better understand the interaction between financial education and timely decision support.

Carlin, Bruce Ian and David T. Robinson. What Does Financial Literacy Training Teach Us? NBER Working Paper Series. Working Paper 16271.

Childhood Neighborhood Conditions and Adult Health Outcomes

Research has demonstrated that the neighborhood in which you live can have a profound impact on your health. Residents of neighborhoods with high concentrations of poverty tend to have significantly worse health outcomes than residents of more affluent neighborhoods, signaling the importance of "place." However, research has tended to focus on the effect of neighborhood factors on adolescents; the timing of these effects across the life-span is less well understood. What are the long term impacts of childhood neighborhood conditions on health outcomes in later life?

Using 38 years of longitudinal data from the Panel Study of Income Dynamics (PSID), Thomas Vartanian and Linda Houser examined how neighborhood conditions experienced in childhood, as well as adulthood, affect self-reported indicators of adult health. Not surprisingly, they find positive long-term health effects for growing up in affluent neighborhoods. However, they also find that those who grow up with low incomes relative to their neighbors report better overall health as adults, suggesting that growing up surrounded by comparative advantage may allow children to utilize neighborhood resources to their benefit. However, once they reach adulthood, the effects of being "relatively deprived" are reversed; relative inequality appears to have negative health impacts. Additionally, Vartanian and Houser find some evidence that the relationships between childhood neighborhood conditions and adult health are stronger for nonwhites than for whites.

This research offers evidence that growing up in a disadvantaged neighborhood hurts the long-term health outcomes of children, particularly nonwhite children. The authors suggest that further research should be done to better understand how neighborhood factors affect longrun health outcomes in order to direct policies and resources to critical issues of health and well-being.

Vartanian, Thomas P. and Linda Houser. (2010). The Effects of Childhood Neighborhood Conditions on Selfreports of Adult Health. Journal of Health and Social Behavior. September 2010. 51(3): 291-306.