“Due to Inflation, a picture is now only worth 350 words.”
Employers have seen mobility costs creep upwards, from the shipment of household goods and travel expenses to enhanced packages needed to overcome a reluctance to move. Rather than reduce benefit provisions, the decline in overall activity during the pandemic allowed many companies the opportunity to stay the course and keep a watchful eye on their programs. Similarly, at Weichert, we didn’t see an overall reduction of benefits, as global mobility teams addressed other aspects of their program, including the rise in business travel and remote work issues.
Meanwhile, many areas of the U.S. experienced a significant increase in home prices, with a median list price reaching a new record in June 2022, hitting $450,000. The increase was steeper in already high-cost locations (I’m looking at you, California!). This rise in home values has been beneficial for employees who made a profit on the sale of their home, experienced little or no hassles with inspection issues, and their employers who enjoyed minimal inventory costs.
But as we all know, that see-saw has to come back down, eventually. The Consumer Price Index rose 6.8% between November 2020 and 2021, driven by price increases for gasoline, food, and housing. Higher energy costs caused the CPI to rise further in 2022, reaching a whopping 9.1%; a level not seen since Gen Xers lined up at the movies in their acid wash jeans to watch the original Raiders of the Lost Ark (that’s 1981 for anyone tempted to Google it).
How Does Inflation Impact Mobility Programs?
As inflation increases, the Federal Reserve reacts by applying more aggressive monetary policy, which leads to higher mortgage rates. Prolonged inflation has continued to impact mobility budgets, including the purchase of a home and employee’s ability to obtain a loan – both critical components in most company relocation programs. At the time of this blog, a 30-year fixed mortgage loan is at 5.81%, up from 2.77% nearly a year ago, the most sizable leap in 28 years. Several industry experts, including Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, indicate that this trend is not expected to cool off soon.
So, what happened to your employee’s handsome profit when they sold their homes, most likely above the asking price? That $450,000 home mentioned above is about $500 more each month than if they purchased the same house at the beginning of this year when the rate for a 30-year fixed mortgage was still hovering at 3.29%.
For employees moving to a high-cost location, the increased cost can present serious affordability challenges. Based on current interest rates and average home prices, a move from Chicago to the Bay Area jumps from $1,430 to over $5,850 –a fourfold increase in their housing cost! Even when accounting for slight changes to rates and home preferences, any decrease would not sufficiently close the gap for a mobile employee.
At Weichert, we’re receiving an increase in requests from companies looking at affordability challenges and solutions. Up against a war for talent, companies are attuned to the reality that they need a competitive, magnetic relocation policy. But, with costs rising at an unsustainable rate, they’re grappling with how to do more, with less.
Stay tuned for the second installment of this blog, where we’ll share the responses and recommendations for navigating the prickly price puzzle that’s impacting how we move (and attract) top talent.
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