Right now, inflation in the US economy is feeling a little like an overtired toddler: impossibly stubborn. Even as gas prices fell in August, inflation refused to follow suit, rising an uncomfortable 8.3% from a year earlier. This means that the moderation that we’d been holding our breaths for, has yet to arrive, and prices for rent, healthcare, food, and goods continue to soar at a rapid pace.
And that much-anticipated housing market softening? Arguably less stubborn! After a year of double-digit gains, housing prices are dropping, but many of the largest markets remained overvalued and inaccessible thanks to high mortgage rates and low levels of inventory. All this is to say, mobility professionals are being challenged to get creative in terms of relocation budgets and protecting the mobile employee experience.
In the first and second installments of this blog post, I broke down how soaring inflation, a booming housing market, and sky-high mortgage rates are impacting mobility, and shared some of the savvy responses embraced by other companies to do more with less. Now I’m exposing the real secret sauce – based on research and anecdotal evidence from our Advisory Services Team – to conquering affordability concerns, helping your mobile talent navigate these sticky markets successfully, and overcoming a reluctance to relocate.
More Approaches to Navigating Sticky Housing Markets
At Weichert, we’ve certainly seen an increase in requests from companies looking for solutions to their affordability challenges. Some companies allow employees to rent for a defined period prior to purchasing a home (typically within one year). Others have begun to dust off their Mortgage Subsidy programs and Mortgage Interest Differential Assistance (MIDA), and are looking at newer products to support the initial purchase:
- Mortgage Interest Differential Assistance (MIDA) programs provide temporary subsidized payments to make up the difference in mortgage rates for a limited period (usually three to five years). This assistance is either provided as a lump sum, a uniform payment over a pre-determined time, or a graduated-payment.
A MIDA benefit may help ease employee concerns related to the financial impact of accepting a move at a time when the cost of financing could be considerably higher. With the ability to customize a MIDA program/benefit, employers have the ability to set cost-containment parameters that align with their overall mobility program, while enticing key talent by offsetting some initial negative financial impact associated with the purchase of a new home.Michael Baldyga
- Whereas MIDA payments are paid directly to the employee, Mortgage Subsidy or Buy Down payments are advanced directly to the lender to reduce monthly mortgage payments. While temporary buy-down qualification criteria have become more restrictive, there are a number of benefits. The buy-down can be long-term, covering the life of the loan, or it can be short-term, reducing mortgage payments for a certain period. A mortgage subsidy program can utilize a predetermined benefit dollar amount, or focus on a tiered annual interest rate reduction for the employee.
A subsidy benefit can also be transferred to a new loan should market conditions improve and the employee refinances into a lower note rate during the benefit period. This flexibility can help further offset the overall financial impact of increased finance costs.”Michael Baldyga
- Recent developments in consumer products include finance arrangements that allow the buyer to present an all-cash offer in order to help them stand out among multiple buyers in a full-throttle market. Following the sale, they must secure financing and buy back the home from the provider. This comes with risks and additional costs, and while it helps the employee to initially purchase the home, it doesn’t address the increase in the ongoing mortgage payments.
The Best of the Best Practices
If you’re thinking about adding a formal approach to high housing costs, here are the top best practices that balance supporting your employees and reinforcing cost containment for the company:
- Define the need for assistance in obtaining a home in the new location with a minimum differential (threshold) for the benefit to apply.
- Develop language that can be utilized within the policy or as an addendum to the policy. Do not specify locations or amounts in the policy/addendum – this ensures it is flexible enough to accommodate changes to the cost of living.
- Consider a longer payout (5 years vs. 3 years) and a higher threshold to qualify (15-25%). This may help to overcome a reluctance to move to areas considered significantly more expensive.
- Don’t overlook renters who may need assistance with higher rental costs. At a minimum, a one-time payment to assist with security deposits can be helpful. Alternatively, consider renter differentials for up to three years.
- Present the benefit as assistance intended to offset increased costs of housing (implies shared responsibility) and the funds will be applied in the most effective way, based on the employee’s situation.
What goes up, must come down, bringing hope that the rate of inflation and mortgage rates will eventually slow. But a nationwide drop is unlikely to happen without a substantial economic shift. Let us know about any changes that you’re making to your program to assist employees in purchasing a new home… Just look for our welcome mat outside the door!
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