The Impact of Rising Home Prices on Homeowner Mobility
The U.S. housing market has seen remarkable price appreciation in recent years, with the median home value rising over 50% nationally since early 2020 according to data from the National Association of Realtors. While this price growth has built home equity for many owners, it also presents challenges when it comes to moving.
Economists refer to this situation as "golden handcuffs" - when high home values financially constrain a family's ability or willingness to relocate for a new job opportunity or change in housing needs. With prices at unprecedented levels, selling a home and purchasing another has become increasingly difficult even for those with substantial equity built up.
The Mechanics of the Golden Handcuffs
There are a few key factors at play:
Transaction costs on both ends: Selling commissions, closing costs, moving expenses amount to 5-10% of a home's value on average. These fees create a high bar to clear just to break even on a move.
Limited housing supply: With just 1.5 months of inventory nationally, buyers face bidding wars and the need to waive contingencies like inspections. This pressures homeowners looking to sell and purchase simultaneously.
Higher mortgage rates: While still low historically, rates have risen over 4% since early 2022. The carrying costs on a larger mortgage balance required to afford today's prices further discourages mobility.
Capital gains taxes: For those who have lived in their home less than two years, profits from a sale are fully taxed as ordinary income. Even after two years, a portion may be taxable depending on filing status and other income.
The Impact on Labor Markets
As a result of these constraints, recent surveys show a decline in the percentage of homeowners who feel very/somewhat likely to move in the next year compared to pre-pandemic. Reduced mobility has real economic consequences as it inhibits:
Labor matching efficiency - Workers are less able to relocate for new jobs or to areas with stronger labor demand.
Business expansion - Companies struggle to attract key talent if local workers cannot afford to move.
Economic adjustment - Regions dependent on declining industries have a harder time transitioning if existing homeowners are stuck in place.
Housing market health - Limited resales reduce available inventory, further driving price appreciation which exacerbates the golden handcuffs issue.
While high home values build wealth over the long run, the current environment has clearly tightened the financial flexibility typically associated with home equity. Restoring more normal housing conditions will be important to maintain labor market fluidity moving forward.