Trends in U.S. Real Estate: What Do They Mean for Relocation?

Several converging factors are having a significant impact on the residential housing market. Here are some key things to know.

Across the United States, the real estate market is booming. Despite a slight pause at the beginning of the pandemic last year, there has been a sustained surge in demand, fueled by prospective buyers who now have greater freedoms around where to live and work, and access to historically low mortgage rates. According to data from the National Association of REALTORS® (NAR), more existing homes were sold in 2020 than in any other year since 2006.

The challenge, however, is that the supply of available new and resale residential properties can’t keep up with that demand – a condition that began well before COVID-19 showed up and isn’t expected to go away any time soon. Inventory is particularly strained in the single-family market, and at the mid-level price points: exactly where many transferees are competing for homes.

In its March 2021 report, NAR shared that nationally, inventory levels were down 28.2% year-over-year, and unsold inventory was at a 2.1-month supply, significantly lower than the typical 4-5 months.

In addition, the new construction market has been set back by COVID-related supply chain woes – increasing costs of fuel, lumber and other raw materials and supplies and transport delays are having a ripple effect, driving up prices and slowing the pace to completion.

Consequently, housing prices are rising, and quickly. Average asking prices nationally reached a new high in May, coming in at $380,000, or an increase of 15.2% over last year, according to Realtor.com. The picture varies regionally, but here’s a quick snapshot, courtesy of NAR:

It’s indisputably a seller’s market.

We’re seeing sellers receiving multiple offers well over listing prices in almost every region, with some increasing by as much as 20%. Whether your employees are participating in a traditional relocation home purchase/sale program, or operating within a more flexible approach, such as a core/flex or managed cap, this is an area into which everyone needs to tread lightly – and rationally. Those of us who have been in the industry for a while will remember well the impact that creative lending programs and negative equity had on both employees and employers who want to relocate them. This market will not last forever, and reason needs to prevail when it comes to how much consumers are willing to pay for a home. Particularly for those employees who are in the early stages of their careers and likely to move again, paying too much, even if the buyer can afford it, will likely lead to more significant challenges in the future.

But you still need to move your employees, right, so what do you do? Knowledge is power, and the best thing you can do for employees on the move now is to prepare them for the market conditions.

Here are some essential things to know going in:

1. Mortgage pre-approvals are a must-have. Getting pre-approved is always a good idea, so employees have realistic expectations about what they can afford, and sellers regard them as serious buyers. In this tight of a market, however, pre-approvals are essential. Make sure your employees and any co-borrows who may be signing with them understand the critical difference between pre-qualification and pre-approval and secure the necessary documents to go in ready.
2. Escalation clauses are on the rise. While the exact terms of such addendums will vary, the basic idea is that you let the seller know what your starting offer is, and how high you are prepared to go beyond that, should they receive offers above asking. Which, in this market, is almost a given. The process is always a negotiation, but now is the time to make sure your employees are putting their best offers on the table, within reason, and an escalation clause could help seal the deal.
3. Some buyers are waiving home inspections. This is not a step we recommend, and many relocation policies might not even allow it, but transferees should be aware they could be up against this scenario. There are alternatives that could still make an offer attractive without taking on undue risk, including walk-through, or “information-only” inspections, in which the seller will not be asked to pay for any issues discovered, but formal inspections are still performed to protect the buyer.
4. Some buyers are willing to waive the mortgage contingency. Again, for those who cannot play in the “all-cash offer” space, this is a high-risk move. It could result in losing an earnest money deposit if funding cannot be secured following the acceptance of an offer, a possibility that’s much more likely if the offer is well beyond the asking price and lenders challenge it. In many states, that’s a hefty sum to risk losing.
5. Some buyers are writing in clauses for non-refundable earnest money. Like the point above, some buyers are willing to forfeit their earnest deposit in the event any contingencies cannot be met. If their budget allows, it may be a risk worth taking to sweeten the offer.
6. Flexible closing dates are essential. The more flexible your homebuying transferees can be, the more likely their offers are to be accepted. For some sellers, that flexibility means a very quick close. For others, it means a willingness to extend the timeframes to allow them to find and secure their next move. Is temporary housing an option, or a rental with a month-to-month lease? Obviously, you and your employees want to be in the new location and role as quickly as possible, but with the current working environment, if your company and your employees have additional flexibility around dates, it will open greater possibilities.
7. Buyers are exploring unique lender programs. Some mortgage lenders, and a few creative start-ups, are seeing opportunities to offer programs to help consumers compete. While programs will vary by state laws, some lenders will offer a guarantee, up to a certain maximum, for buyers with excellent credit. Those who can afford some flexibility in their budgets beyond that guarantee are offering to personally cover the difference between the lender-appraised value and the ultimate sales price. Some companies backed by venture capital, like newcomer Ribbon out of North Carolina, are providing guaranteed offers to facilitate all-cash transactions in exchange for a fee, effectively converting traditional buyers into cash buyers.

The options that are available to transferees will depend on market location and local regulations, company policy and culture, moving flexibility, financial status, and appetite for risk. Corporate HR and mobility teams, working closely with their relocation partners and broker networks with on-the-ground expertise, can help counsel employees on making good, sound decisions.

“The low inventory, fierce competition for buyers, and wide-ranging strategies for consumers to use to put their best offer forward are making traditional relocation home sale transaction practices much more challenging.”

If your employees are moving with the assistance of a formal home sale program that requires a Broker’s Market Analysis (BMA) or relocation appraisal, low inventory and over-list-price transactions obviously make finding comparable sales much more challenging. The current market conditions are making it difficult for appraisers, too, and some lenders are asking for additional information or documents as part of the review process.

Finally, we know that moving is an emotional time, and losing out to other bidders is disappointing. Employees can get “swept up” with the temptation to compete in ways they would never have considered in a more balanced market. Losing out to other bidders may mean that employees need longer periods of temporary living or storage coverage, which is something to consider when budgeting.

When all is said and done, the lessons of the past are worth remembering now. We’re still in uncertain economic times, and while all indications are that interest rates will remain relatively low for the near term, they won’t stay that way forever. The delicate balancing act of managing the post-pandemic economic recovery and growing risks of inflationary pressures has economists and investors keeping a very watchful eye on regulatory next steps.

The bottom line? Inventory is expected to remain very low and competition for those properties that are available is steep. A bit of flexibility, maintaining a sense of perspective, and a whole lot of patience are key to seeing us through.

For more information on how we can help your relocating employees navigate the current market challenges, schedule a call with us.