While paging through some CoreLogic data on negative home equity—that, of course, is what you’re left with when you owe more on your home than what it is worth—I was reminded of the extent to which this still, after all these years, remains a factor weighing on both people’s economic security and the recovery. Aggregating across the nation, about 23% of mortgages are underwater, according to CoreLogic, but as the figure shows, there’s great variation across states, from 61% in Nevada to about 6% in NY. (Btw, “near negative equity” refers to mortgages within 5% of negative equity.)
Yet, we still hear people claiming that it’s the unions who tanked the economy, or regulation, or taxes, or the deficit, or resentment of rich people. That’s all complete bunk and I can prove it…well, only in very reduced form (meaning “not really,” but bear with me anyway).
Suppose you compare changes in state unemployment rates, 2007-2010, against the negative equity shares in the graph (it might be better to use changes in home prices by state, but the states with the most negative equity are the states where home prices fell the most).
As shown in the figure, you actually get a tight fit. The coefficient on negative equity has a t-statistic of 6.3 (highly significant) and that one variable explains 49% of the variation in unemployment rates across states.
Just for fun, let’s add union coverage by state. Its coefficient is 0.001and its t-stat is 0.03 (highly INsignificant).
So in case anyone asks, it was the housing bubble–not unions–that tanked the economy. What’s that you say…no one would ever think such a thing…? You haven’t been to Wisconsin lately, have you?
Source: CoreLogic, BLS