When faced with a job loss, older college-educated homeowners are twice as likely as renters to exit the workforce, according to new research published by the Mortgage Bankers Association.
The study sought to answer a puzzling question: Why are older Americans working longer but moving less frequently?
The labor force participation rate among workers who are 55 or older is 56.3%, more than 10 percentage points higher than it was in 1995. At the same time, interstate mobility for individuals between the ages of 55 and 69 has fallen to the lowest rate on record. Older workers are the only group who are simultaneously moving less and changing jobs more.
The author, Brian Asquith, an economist at the Upjohn Institute for Employment Research, determined the labor-market anomaly stems from the fact that homeowners and renters, as well as those with and without college degrees, respond in opposite ways to job losses and housing wealth appreciation – in large part due to rising income inequality.
"Older renters appear to be more reluctant than homeowners to leave the labor force in response to any adverse event, possibly because they are worried about paying for their rents in the future when they expect to be living on a fixed income," Asquith wrote in the study.
On the opposite side of the spectrum are older homeowners and college-educated individuals, who are more inclined than renters to retire or leave the labor force permanently if they lose their job.
For instance, in the wake of the 2008 financial crisis, renters experienced an 8% decrease in labor force participation, the study found, while homeowners saw a 16% decline. There was "minimal evidence" that older workers increase their participation in the labor market, or chose not to retire, in response to changes in housing wealth.
"Unsurprisingly, this means that older homeowners, particularly those without a college degree, really seem to value having their homes as a bulwark against these same adverse events," Asquith said.
The research highlights a potential negative side-effect for the mortgage market: The number of older Americans with a college degree is rising – and degree older have higher ownership rates – as the U.S. faces an aging population and rising regional inequality in home prices that could slow down migration, potentially hurting demand for new mortgages in some areas.