2022 Real Estate Market—Client Policy Considerations with GRA
Few anticipated the sharp home price appreciation and red-hot real estate market of 2020-2021. Average home prices have appreciated in some markets over 40% since the beginning of the pandemic. This has been driven by a national housing supply below normal since even before the pandemic, and an undersupply which continues today. In fact, as of mid-2022, the number of homes listed for sale in the U.S. remains over 60% less—or over 800,000 homes fewer—than what is typical for this time of year. Homes are expected to continue to appreciate through 2022, albeit at a more modest pace.
In addition to an ongoing inventory undersupply and persistent home price appreciation, in 2022 mortgage rates have increased more sharply than in the past forty years, from historically low rates on 30-year fixed rate mortgages below 3% at the beginning of this year, to rates pushing 6% or more just six months later. While it is unknown where rates will go in the second half of 2022, many believe a level of 5-6% for 30-year fixed rates will mark the high point, and, in fact, rates have finally begun to level off mid-summer.
Every transferee buying a home this year will feel this impact to affordability as they look to purchase a home in their new destination, and first-time homebuyers will be particularly affected by affordability issues. Monthly payments on the average new home are up over $600—just since the beginning of this year. Rents in most markets have seen similar increases, so renting may not provide the transferee a better option.
Corporate clients may now be faced with their transferring employees requesting help in the form of relocation benefits. For some clients this could prove critical from a recruitment and retention perspective. Here are a few options to consider.
Considerations for Your Transferees and Policy Benefits
- Home Purchase Benefits—Clients are wise to consider offering transferees home purchase benefits and mortgage services from a lender experienced in assisting relocating employees. Because the housing market is competitive, transferees must be prepared in advance to know exactly what they can afford and have their mortgage preapproval ready in advance of seeing properties. Affordability will impact what the employee should anticipate offering for a home. The knowledgeable help of an experienced relocation loan officer is critical to decision-making and positions the employee to make offers quickly and assertively, for the amount they are comfortable offering. Likewise, it is important for the relocation management consultant to place the transferee with a trained relocation real estate agent in the destination, to be sure the realtor supporting the transferee understands the nuances of a corporate relocation, the needs of the transferee and their time requirements, and the need to follow the client’s policy guidelines.
- Appraised Values and Home Inspections—Transferees are less likely today to make an offer on a home over list price than a year ago, although some may. Clients may consider adding policy verbiage to clarify for the transferee any down payment over the home value will not be reimbursed if the home does not eventually sell for what they paid for it. Likewise, some purchasers, to win a bidding war on a house, may be tempted to waive the home inspection contingency. Clients may also consider adding policy verbiage or formally communicate to the employee the risks of waiving a home inspection to prevent the employee from expecting the company to cover costs if defects are later discovered in any subsequent home sale.
- Home Finding—Allowing the employee ample opportunity to find a home may be more important than ever. In some cases, this may result in the need for covering the costs of longer or additional homefinding trips. This can alleviate enormous stress for the employee and family as the supply of homes are down and the costs to purchase have gone up.
- Options for Offsetting Higher Mortgage Rates—Not since the 1980s have employers had to consider offsetting the rapid increase of mortgage rates as a part of a benefits package. To follow are a few possible approaches should the employer find it necessary to provide additional help to transferees:
- Offer no additional benefits—If the client’s culture or financial limitations dictate the employee must absorb higher move costs, and if the employer is not weighing recruitment or retention as issues currently, they may elect to not make any changes to benefits. Depending on the number of employees being moved, this would still leave the employer the ability to make any necessary exceptions on an employee-by-employee basis.
- Offering Discount Points—A common and straightforward approach—and an approach used broadly in times past—is to offer to pay discount points at loan closing on the new house to help the employee “buy-down” their interest rate. A cost of a point is the equivalent of 1% of the loan amount, so one point on a $250,000 loan would cost $2,500. While there are no definitive guidelines on how many points to offer, paying 2-3 points is common. This may not buy the employee’s rate down to what they had on their departure home, but it does help offset the higher mortgage rate on the new home, and the client cost is easier to control than other options.
- Offering a Mortgage Subsidy—A less frequently used approach is for a client to offer the employee a mortgage subsidy. A 3/2/1 subsidy, for instance, means the rate on the mortgage is reduced by 3% the first year, 2% the second year, and 1% the third year, helping the employee to adjust to the higher mortgage rate on the new home. This can be of significant help to the employee, although the cost of this benefit to the client can be significant. Administratively, this is a complex solution, as the calculation and payment of the subsidy must be coordinated between the employer, the mortgage lender, and the employee over a multi-year period.
- Offering a Mortgage Interest Differential—A simple and impactful option is to simply pay a mortgage interest differential, also known as a MIDI, directly to the employee. Like a subsidy, a MIDI is structured on a sliding scale but is paid by the company directly to the employee as an annual payment, typically for a two to three-year period.
As we move into the second half of 2022, the hope for transferees is for the inventory of available homes to continue building, softening home prices. Likewise, the hope is for inflation to come under control, helping to moderate mortgage interest rates, and improve home affordability. In the meantime, these policy options could make an important impact for transferring employees under some policy tiers, or as exceptions for those transferees who need it most.
All information provided in this article is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Any portion of this article may be reprinted or shared only with clear reference to its source being Guaranteed Rate Affinity.
With a dedicated relocation staff averaging over 20 years’ experience, Guaranteed Rate Affinity provides relocation mortgage services nationwide, serving as a trusted mortgage partner to Cartus and to hundreds of corporate clients across the country. For further information, please contact Mike Puckett at email@example.com, or Fran Forrest at firstname.lastname@example.org.