Navigating a Rapidly Changing Real Estate Market

How to ensure your mobility program is set for success in 2023

How is the Current Housing Market Affecting Your Program?

Compared to the “Covid market” where houses sold quickly, we are seeing a change in buying and selling habits that resembles a more “normal” market.

Currently:

• Homes are taking 30-90 days to sell – a normalized stat preceding the pre-Covid era
• More incentives, buy downs and repair allowances are often required to sell a home with a buyer’s market in some areas
• Inventory is inevitable and home values are slowly falling in some areas
• Higher mortgage and inflation rates are minimizing transferee purchasing power
• Conservative lending practices are still at play with 20% deposits often required

Example: $625,000 home / 20% down payment / $500,000 mortgage

Viable Borrowing Options & Mortgage Assistance to Cope with Rising Mortgage Rates

How can updated, well-constructed policies support your homeowner transferees?

Adjustable-Rate Mortgages

With the combination of higher mortgage rates and the average life span of a mortgage coming in at 8 years, an Adjustable-Rate Mortgage (ARM) may be the most affordable for your  transferee. ARMs help with mortgage affordability by offering a lower rate up front and adjusts the fixed rate over time. Additionally, the conforming loan limited is scheduled to increase up to $715,000, allowing your transferees to qualify more easily for a home loan, playing an increasingly dominant role.

Mortgage Buydowns

Many employers are providing relief to their transferees through mortgage buydowns to lower monthly mortgage payments to soften the blow of the continual rising mortgage rate. This one-time benefit is provided at the beginning of the relocation to provide your employees with cost savings during the life of the mortgage. The sliding scale to the right is an example to help your company decide what works best for you and your transferees. Mortgage buydowns are typically more cost effective for our clients and is easy to implement.

Mortgage Buydown Considerations:

• Confirm that your policy is basing the % buydown off the loan amount instead of the purchase price – it’s a more cost-effective option
• Confirm that your policy incorporates the use of Sterling Lexicon’s preferred mortgage lenders to ensure the greatest cost savings available
• Review your sliding scale starting points and adjust based on market conditions

Mortgage Interest Differential Allowance (MIDA)

When up against higher interest rates, MIDAs are designed to ease the burden of these elevated rates in the new home. It allows clients to pay transferees the difference of interest rates from the current home versus the new home to make the move more economical and allow the transferee to feel more comfortable accepting a relocation. This customizable benefit is applied after closing as part of the transferee’s monthly mortgage payment and is usually paid out to the mortgage company during a three-year period.

MIDA considerations:

• The cost can be extremely significant at the onset.
• Once the benefit ends after three years, the transferee may face sticker shock when their rate
  returns at a higher interest rate.
• Taxability concern since interest is tax deductible. MIDAs are applied to the interest portion of the payment possibly hurting the transferee’s tax deduction claims

Interest paid over 3 years on a $500,00 mortgage

Are Your Policies Up-to-Date and Ready for 2023?

For the past 10-plus years, we have reaped the benefits of consistently lower interest rates. Now that the real estate landscape is quickly changing (increase in home prices and mortgage interest rates) our transferee’s purchasing power has been diminished. The good news is that homeownership is still the goal of most transferees and our ability to help them become homeowners can have a significant impact on your ability to attract and retain top talent.

To minimize exceptions and to set the stage for a successful mobility program in the coming year, you should ask yourself the following questions:

• Are your policies consistent within your industry and amongst your competitors?
• Have you lost a prospective employee or has an existing employee turned down a move because of your policy?
• When is the last time you benchmarked your policies?
• How does your company culture support the transferee? Are you focused more on the employee experience or the cost to the company?
• Is it your company’s intent to keep the transferee whole?
• Is the assignment short-term or more long-term to help determine what mortgage solutions would help your relocating employees?