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New Study Predicts Gloomy Economic Times Ahead For Americans

New Study Predicts Gloomy Economic Times Ahead For Americans

With unemployment sky rocketing as a result of Covid-19, there has been a corresponding rise in evictions and mortgage defaults. A new study from Washington University in St. Louis’ Olin Business School of the loan-to-value ratios in the wake of the 2008 financial crash issues a cautionary warning about the troubles ahead.

The study finds that the higher the outstanding mortgage is relative to the value of the home, the worse the future income growth and job mobility of the individual will be.

The researchers assessed wage data and credit profiles from around 30 million Americans working in over 5,000 companies. The analysis revealed a negative association between the income of the worker and their home loan-to-value (LTV) ratio, with this especially so when the principle owed was higher than the value of the house.

For instance, when homes were in such negative equity, the homeowner would earn $352, or 5%, less per month than workers with less mortgage debt relative to the value of their home. This situation is often compounded by poor credit or liquidity issues, which can render people unable to move to a new job with better income, or even to a new area. It’s a situation the researchers believe could be exacerbated by the current crisis.

“The impact of the current crisis on local economies varies widely across the U.S.,” the researchers say. “Our study highlights the difficulties someone in a worse-affected area may face in trying to pack up and move to a less-affected region. Furthermore, our study also highlights an important cost of homeownership: For instance, buying a home will constrain your labor mobility, and in the long run that may adversely affect your labor income.”

Precarious finances

The researchers gathered data

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