Article

August 2013

The relationship between the housing and labor market crises and doubling up: an MSA-level analysis, 2005–2011

It is now well established that the U.S. housing market crisis preceded the labor market crisis and that, in the wake of these crises, doubling up and cohabitation increased and homeownership fell. What is less clear, however, is what happened at the subnational level. This article reports on (1) how the length, severity, and relative timing of both the housing and labor market crises varied by metropolitan statistical area (MSA), and (2) the association between the timing of these crises and changes in homeownership and doubling up at the MSA level. The analysis uses data on 353 MSAs, with a focus on 12 MSAs, for the period from 2005 (precrisis) to 2011. MSAs are categorized into those where the housing market declined first, those where the labor market declined first, and those where the events were concurrent. The analysis reveals that (1) in the majority of MSAs, the labor market declined first, contrary to the national pattern and the experience of the vast majority of large MSAs; (2) there is a clear relationship between greater regional housing distress and falling homeownership rates; and (3) somewhat surprisingly, the association between changes in doubling up and these crises is fairly weak at the MSA level.

In early 2007, the most recent U.S. housing bubble burst. The bust was followed by the onset of the Great Recession and the deepest employment decline that the United States has experienced since the end of World War II.1 In the wake of these events, media reports and research studies have documented increased “doubling up” of families as well as increased numbers of young adults who returned to their parents’ homes or were slower to exit them than they were in years past.2, 3 A sign of the times, a 2009 USA Today article began, “Love isn’t all that’s keeping family together today. The bruising housing market is too.”4 Other reports have pointed to rising rates of cohabitation resulting from the economic crisis, in addition to the secular rise that was already underway.5

Although these national patterns are now well established, the relative timing of the housing and labor market crises at the MSA level and the association of these crises with household formation have not been fully studied.6 This article reports on (1) how the length, severity, and relative timing of both the housing and labor market crises varied by MSA, and (2) the association between the timing of these crises and changes in homeownership and doubling up at the MSA level. The analysis uses data on 353 MSAs, with a focus on 12 MSAs, for the period from 2005 (precrisis) to 2011.

In this article, MSA-level housing prices serve as a measure of overall housing conditions. The start of the housing crisis in a given area is identified by looking at when housing prices peaked. Similarly, the start of the labor market crisis in a given area is identified by looking at when employment peaked. Using information on the timing of each crisis, the article then looks at the relative timing of the crises for each of the 353 MSAs examined, by investigating (1) whether the housing market crisis occurred first (which was the pattern observed for the nation as a whole), (2) whether the labor market crisis occurred first (which, it turns out, was the pattern for a slight majority of MSAs), and (3) whether these events were concurrent. The relative timing of the crises appears to be a useful way to categorize MSAs. The MSAs where the housing market declined first have some distinct characteristics: many are among the largest MSAs (as measured by employment size), and the crises in these MSAs were among the most severe, in terms of both magnitude and duration.

The article also investigates the association between the housing and labor market crises and changes in doubling up and homeownership at the MSA level. As would be expected, there is a strong association between greater regional housing distress and falling homeownership rates. Somewhat surprisingly, however, the association between changes in doubling up and these crises appears fairly weak at the MSA level.

Literature review

The collapse of the U.S. housing market in 2007 and the onset of the Great Recession spawned a tremendous amount of inquiry into the nature, causes, and consequences of these crises. The most relevant previous research can be divided into two parts: (1) studies that have looked at the housing market crisis or the labor market crisis at the subnational level, and (2) studies that have looked at the relationship between these crises and household formation at the MSA level. Each literature is discussed in turn.

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About the Author

William H. Rogers
rogerswil@umsl.edu

William H. Rogers is associate professor of economics at the University of Missouri–St. Louis.

Anne E. Winkler
awinkler@umsl.edu

Anne E. Winkler is professor of economics and public policy administration at the University of Missouri–St. Louis and a research fellow at the Institute for the Study of Labor (IZA).