The beginning of a new year is always an opportune time to reflect on continuing and emerging trends in global mobility. One of the unexpected consequences of the covid pandemic—now entering its fourth year—was a dramatic rethinking of how we work and how we are rewarded for that work, including employee relocation benefits. While already underway, the pandemic dramatically speeded this change.
The pandemic also had economic effects, reflected in the housing market, interest rates and more. The policy response has, to a large extent, been “what’s old is new again.” Programs like MIDAs, unknown to many of today’s relocation professionals, are returning. And companies are now offering benefits that were once reserved for VIP candidates to other employees to entice them to relocate.
The competition for talent is as keen as ever, and mobility remains an essential tool for companies looking to hire and retain the best and the brightest. Understanding employee relocation trends can help a company to reassess its current program and ensure it is fine-tuned for today’s marketplace and workforce.
- CONTINUED RISE OF INTEREST AND MORTGAGE RATES
To fight surging inflation, the Federal Reserve raised the prime rate seven times in 2022. Though inflation is gradually receding, the Fed has strongly suggested that the rate hikes will continue in 2023. They hope to create an economic soft landing, taming inflation without causing a recession. Mortgage rates have also climbed sharply in a short period, significantly reducing the mortgage balance many borrowers can afford to carry.
While buyers have recently become accustomed to extremely low mortgage rates, older generations remember rates near today’s level being the norm. According to Freddie Mac, between April 1971 and December 2022, 30-year fixed-rate mortgages averaged 7.76%.
What does this mean for the mobility industry?
Potential transferees who have existing mortgages at very low rates will be hesitant to give them up and, in some cases, will decline an employee relocation without assistance. As a result, companies will need to consider policy responses to soften the blow and make relocation benefits more enticing, such as sliding scales, mortgage interest differential assistance (MIDA) and interest-based and dollar-driven mortgage subsidies.
- COOLING OF THE REAL ESTATE MARKET
Housing inventory in much of the U.S. remains tight, mainly due to years of underbuilding for a growing population. As a result, housing prices have not declined as significantly as some buyers had hoped. Adding to the problem, many homeowners with low-rate mortgages aren’t eager to give them up. Before a recent uptick, applications for new mortgages had reached their lowest level since the mid-to-late 1990s. This essentially keeps current owners stuck in their homes and limits inventory flow.
In addition, homeowners who are selling are often still reaching for peak pricing. They are unwilling to negotiate much or to make updates or repairs that may now be necessary to get that higher asking price. Finally, homeowners who took advantage of a loan forbearance program during the pandemic likely have less home equity than expected. The forbearance programs offered did not forgive payments; they simply tacked them onto the end of the loan.
What does this mean for the mobility industry?
Companies must reconsider the benefits required to convince employees to accept relocation. Some companies are rethinking relocation benefits they eliminated from mid-level policies after the housing crash in 2008, including guaranteed buyout homesale programs, loss-on-sale provisions, and mortgage assistance programs as mentioned above (subsidies, interest differential assistance, sliding scale benefits). Companies are also reconsidering the Cost-of-Living Allowance (COLA). This benefit was once only necessary for select, high-cost international and U.S. locations but is now on the upswing throughout the U.S. The COLA reflects not only housing differentials but also goods and services.
- TIGHT RENTAL AVAILABILITY AND AFFORDABILITY
The rental market continues to tighten. At the end of Q3 2022, the national rental vacancy rate was just 6%. According to iProperty Management, the national rental vacancy rate declined by 13.8% in 2021 and this decline continued through 2022.
After moderating slightly in September and October 2022, the median monthly rent rose to $2007 in November. Increasing mortgage interest rates, rising home construction costs and building delays, and the lack of skilled construction workers have increased the interest in renting or continuing to rent for some individuals and families. However, while there are signs of rents moderating, they are still higher than mortgage payments for a comparable property in some cases.
Many landlords whose tenants were protected by the federal CARES Act or other state-run renter protection programs during the pandemic are raising rents to recoup lost income. According to The Wall Street Journal, bidding wars have emerged in rental markets in large metro areas, including Chicago and New York. With multiple rental applications to choose from, landlords tend to favor high-earning and more financially stable older professionals, making the situation even more challenging for others.
What does this mean for the mobility industry?
Reduced inventory and high rental rates, particularly for single-family homes, can deter renters from accepting a relocation. More people are splitting the rent with roommates or living with siblings or other family members, making it challenging to accept relocation offers. Coverage for lease break penalties and rental broker’s fees and possibly adding rental deposit assistance to the benefits menu will make it easier for renters to relocate. More renters are also receiving a COLA benefit.
