The newly immobile United States

One of the best things about America has always been the ability to reinvent oneself by moving to a new place. In my case, that's been pretty limited -- Long Beach to San Diego to Upland to Los Angeles -- but for many people born in small towns in the heartland, moving to a big city or the coasts has been the first step to create a new life. For others, when a new job beckoned, they'd simply sell their home, wait until the kids were out of school and move during the summer. But now, with so many homeowners underwater and health insurance (ridiculously) tied to employment, people stay rooted in places that no longer fit and working at jobs they hate. What does that mean for the U.S. economy? The Economist ponders that very question:

...throughout history, Americans have dealt with economic shocks by picking themselves up and moving on. Their mobility underpins America’s flexible, dynamic labour market. Now it faces two threats.

One is the housing bust. House prices have collapsed by 27% since their peak in 2006. By December last year a fifth of homeowners with mortgages owed more than their homes were worth. Such people are only half as likely to move as those whose homes are above water, estimate Joseph Gyourko and Fernando Ferreira of the Wharton School of business.

Some cannot sell their homes at all. Others could, but don’t want to take a big loss on an investment they thought was safe as houses. Either way, they are stuck. If a good job comes up in another town, they cannot take it. This effect is partly offset by the impact of foreclosures. Last month alone 291,000 homes received a foreclosure notice. The newly evicted are not merely free but obliged to move. This is unfortunate, but although jobs are in short supply nearly everywhere, being mobile at least increases the odds of finding one...

The other threat to mobility is health insurance. A company can buy health insurance for its employees with pre-tax dollars; an individual can buy it only with after-tax dollars. So although soaring premiums are prompting many firms to drop or restrict coverage, most Americans still get their health insurance from their jobs...

Tying health care to a job can tie people to jobs they hate. Gerry Stover, who now runs a doctors’ group in West Virginia, recalls a time when his wife was pregnant and he couldn’t get health insurance at a private firm. He became a prison guard. As a public employee, his family was covered. But the job was neither pleasant nor a good use of his talents...

Some people even get stuck in bad marriages because they need their spouse’s health insurance. As Alain Enthoven of Stanford University puts it, this gives new meaning to the word “wedlock”. The recession seems to have slowed internal migration. Only 11.9% of Americans moved house between 2007 and 2008—the most sluggish pace since records began in the 1940s....

Housing bust decreasing mobility in Sunbelt states

One of the more significant impacts of the distressed housing market is the lack of mobility for a country accustomed to moving every 7 years. The Census Bureau has recently released a report for the annual period ending July 1, 2007 that shows the impact of decreasing mobility, including net population losses in Los Angeles County as well as parts of Michigan, Ohio and Florida. From an article in the Wall Street Journal:

Population increases in many fast-growing counties, particularly in the South and West, started slowing last year, suggesting that the housing crunch may be forcing many Americans to stay put.

People "are paralyzed in their quest for jobs in growing areas in many parts of the country because the housing market has shut down across the board," said William Frey, a demographer at the Brookings Institution, a Washington think tank.

The Census Bureau's annual estimate of county-population changes covers the 12 months that ended July 1, 2007. It shows that many Americans continued moving to sunny counties in Florida, Georgia and Arizona, but that the rates were slowing.

The data show a marked deceleration in population growth in several suburban counties that are farthest from urban centers -- the kind of counties to which some city residents had flocked in prior years for bigger houses and a different lifestyle. At the same time, urban areas and close-in suburbs were seeing population decreases slow, and in some cases reverse...

The slowdown of county-to-county movement pulled down expansion in other fast-growing counties. Population in California's Riverside County, which is east of Los Angeles, increased by 66,000 -- down from 80,000 between July 2005 and July 2006. In Texas's Harris County, where Houston is, the population increased by 60,000, less than half the gain between July 2005 and July 2006.

Some formerly highflying counties actually saw population fall. Broward County, Fla., part of the Miami-Fort Lauderdale metropolitan area, added an average of 28,000 residents a year between 2000 and 2005. But the county lost 13,000 residents between July 2006 and July 2007. That was the county's first population decline recorded by the Census Bureau.

Some cities and suburbs that had been losing people to outer areas saw the exodus slow. Cook County, Ill., which includes Chicago, had lost an average of 16,000 a year between 2000 and 2006. Last year it gained about 4,800. In San Diego, the population rose by 27,000 in the latest period, compared with an average gain of 5,000 a year between 2003 and 2006...

Movement from one part of the country to another often slows during economic weakness and sometimes spurs shifts. In the early 1980s, many people fled the industrial Midwest for Texas oil towns, then moved again when the boom ended. Earlier this decade, workers from tech firms in Northern California headed south after the late 1990s tech boom collapsed.

The housing market's woes, though, are working the other way. Demographers and headhunters suggest people may be staying put because they can't sell their homes or can't get financing for new ones...

Dru George, a partner at Austin McGregor, an executive search firm based in Dallas, said that in the past nine months he has had several executives turn down jobs in other places because of the financial hits they would take if they sold their homes. Some are "under water" -- that is, they paid more on their houses than they would get selling them -- he said.

"I'm doing a search in Austin, and I was speaking with candidates, East Coast, West Coast, in the South," he said. "A lot of these executives are $300,000 to $400,000 under water on their house. Do they sell it at a loss or stay put? That's something we see on a daily basis."