The previous challenges for buyers
Real estate markets are a huge impact on the relocating employee experience. Most homeowners moving within corporate relocation programs end up selling that home and purchasing a new one, if they can afford it! And that has been a big (or bigger) if for many over the last couple of years. While home values in many markets have continued to rise this year, albeit not to the same degree as before, mortgage rates have now jumped, and suddenly houses are even less affordable. At the same time, with home prices at record highs, this was a market overdue for cooling off. We had experienced the Pandemic Housing Boom—which had pushed U.S. home prices up 42% over the past two years.
Recent impactful changes
With the previous hikes in interest rates, many (including Fed Chair Jerome Powell) believed that we were starting to already see signs that the housing market was cooling, at least in some locations, well before this latest 0.75 percentage point rate hike. According to the NAR, contract signings for home purchases, or deals signed but not yet closed, fell 8.6% in June from a month ago which was above what economists were predicting, and a 20% drop from last year. Housing starts, as well as sales, and home loan applications are all on a downward trend.
Per Axios, "Home sales are slowing down, and some of the pandemic era's hottest "Zoomtowns" — sleepy areas where remote workers pushed up real-estate prices — are already seeing price drops." Except for a couple of months at the start of the pandemic, this was the slowest pace since September 2011. Add to that that mortgage applications are at their lowest level since February 2000.
According to this article in Fortune, we are seeing a 180 degree turnaround right now. Across the nation, home sales are plummeting and inventory levels are spiking. This economic contraction has housing slowing down at its fastest clip since 2006. "Activity is now in free-fall, inventory is rocketing, and prices have started to fall," Ian Shepherdson, chief economist at Pantheon. He feels we are in the midst of an adjustment, that has not peaked yet and might not until the end of the year or longer. Demand needed to soften and inventory needs to rise so this was necessary. As it relates to newly built homes, builders are now offering more incentives to offload rising inventory, although prices are still higher than they were a year ago.
Where are things going?
According to CNBC, the steep decline in activity coincided with a sharp jump in mortgage interest rates. That makes sense - as long as mortgage rates keep climbing, we should expect contract signings to tumble. The average on the 30-year fixed loan crossed over 6% in the middle of June, according to Mortgage News Daily. It started the year around 3%. Those high rates and inflation in the general economy are hitting buyer sentiment hard. Because of the higher mortgage rates, the summer homebuying season will have fewer bidders and homes won’t be selling over the asking at the rate they are right now.
The NAR is now forecasting total sales for this year will be down 13%, but that they should start to rise in early 2023. With demand slowing, appreciation has been slowing and inventory has been climbing. Expect to see that to continue over the second half of the year.
What is important for global mobility to understand about the housing market?
Here are three things for global mobility professionals to understand about the housing market for the rest of 2022:
- As we work through this housing adjustment period, expect some anxiety and apprehension, particularly on the home sale side as things get a little more balanced for buyers.
- Expect home buying to remain a challenging endeavor, particularly for lower earners and first-time buyers as affordability remains super challenging. With the Federal Reserve raising short-term rates and signaling further increases, it likely means that mortgage rates should continue to rise over the course of the year.
- Ensure real estate agents are relocation certified and approved by your Relocation Management Company (RMC): The pandemic brought on a real estate agent boom. There are now more real estate agents in the U.S. than ever (1.57 million as of June). It is more important than ever to have a high quality agent that truly understands the market and the relocation process.
Per Kelly House, Manager of Real Estate Services here at Plus, a properly relocation trained agent should meet some minimum qualifications:
- Be a licensed Realtor with minimum 3 years of full time experience. This is a complex level transaction that is not suitable for newly minted agents.
- Be an expect within the market location, price range and style of property.
- Understand the role the relocating employee, relocation management company and brokerage as it pertains to navigating the IRS compliance requirements for a tax protected home sale program.
- Have the support of their brokerage who hires a relocation department to help service the relocation transactions and requirements.
- Provide a full marketing campaign that encompass professional photography and materials both online and in person. Along with meeting reporting requirements for the relocating employee and RMC.
The housing slowdown we've been anticipating for months is here. The big picture: Home sales are slowing down, and some of the pandemic era's hottest "Zoomtowns" — sleepy areas where remote workers pushed up real-estate prices — are already seeing price drops. Why it matters: The idea of a real estate downturn might seem scary, especially if you lived through the last one. But with home prices at record highs, this was a market overdue for cooling off. What's happening: "Activity in the housing sector has weakened," is how Fed Chair Jerome Powell put it Wednesday, at a press conference announcing another 0.75 percentage point rate hike.