High-cost housing and down payment options in relocation

Supporting relocating employees with creative solutions

The current environment of high housing cost, low inventory, intense buyer competition, and increasing interest rates is challenging relocating employees in ways not experienced in several years. There are strategies mobility program managers can consider for supporting relocating employees with navigating today’s evolving real estate market.

Assistance for homeowners in high-cost destinations

Contributor: Russ Haynie, Principal, Russ Haynie Consulting Services

There are many challenges facing both homebuyers and mobility managers. Some of the most notable trends include:

• Difficulty in affording mortgages is acute with first time buyers as well as trade-up buyers
• Rates of 5.5%- 6% expected in the near-term which will eventually temper price growth with flattened to decreasing prices
• Exposure to home price declines, particularly in markets with high rates of recent price appreciation (Mountain West, Pacific Northwest, and sunbelt states)
• Homebuilding activity is expected to remain strong and should generally prevent large home price declines 
   

The motivations companies may have for offering specialized assistance include:

• High housing cost and/or cost of living differentials between departure and destination locations as determined by specialized data providers
• Difficulty meeting down payment requirements among relocating homeowners, which can be related to high destination housing costs and/or diminished equity position in the departure location
• An increasing reluctance to accept relocation offers among homeowners with exceptionally low rates on departure home mortgages who may face higher rates when financing a destination home purchase
   

Regardless of the motivation for offering support, common methods include:

• Cash allowances that may be paid as some combination of lump sum payments or in installments over a defined period
• Mortgage subsidies managed through the company’s preferred lender partners, either cash or rate-based and paid over a defined period to assimilate the employee to higher costs and/or rates at destination
• Corporate-sponsored in-house loans or second mortgages managed through lender partners to assist with down payments
   

Industry consultants and lender partners are available to assist mobility program managers with finding a solution best suited to each organization’s goals.

Creative solutions for relocating homebuyers

Contributor: Lois Johnson, Senior Director, U.S. Mobility, ADP

The ever-changing market has brought out creativity in homebuyers and mobility managers alike. A few strategies to help:

• Providing targeted support with departure location housing including duplicate housing cost coverage and flexibility with start date in the destination work location
• Offering an advance of available equity to enable purchase of a new home at destination before selling the departure location home
• Connecting homeowners with lenders who can accommodate cash offers when buyers need mortgage financing and buy now/sell later programs such as those offered by Ribbon, UpEquity, and Annie Mac
• Offering a Cost of Living Allowance (COLA) provision via mortgage or rental subsidy on a declining basis over a defined period (3-5 years is common)
• Paying for inspections on destination homes, regardless of whether contract is contingent on them, for informational purposes 
• Favoring employees facing loss on sale during a future relocation by basing coverage on original purchase price rather than appraised value if a talent focus prevails, or factoring-in the original appraised value and/or implementing caps on loss coverage if the company needs to defer to budget constraints

Other specialized mobility strategies for homeowners

Contributor: Andreas Strohschein, Enterprise Rewards Partner, Mobility, Roche/Genentech

Other strategies employed to help homebuyers navigate today’s climate may include:

• Providing comprehensive pre-decision/ pre-hire support including benefit briefings, tax consultations, in-person or virtual area tours, and financial counseling to help assess the feasibility of living in a high-cost destination
• Offering departure housing-related benefits including home sale assistance programs, equity advances and coverage of loss on sale up to a defined cap (common range is $25,000, increased to $100,000+ for senior levels)
• Supporting the employee at destination with a home finding trip, destination services support, home purchase assistance, temporary housing, a high cost of housing subsidy, when applicable, and an interest free corporate second loan repayable over a defined period, perhaps with partial forgiveness for senior levels

U.S. Bank observations of current market challenges for homebuyers

Contributor: Aaron Tyler, Mortgage Loan Officer, U.S. Bank

Other trends observed in today’s low inventory and intensely competitive market environment include:

• Buyers being expected to release earnest money to sellers immediately which comes with risks that should be discussed with the real estate agent and lender
• Few, if any contingencies (appraisal or financing) which requires a high degree of counseling to the pros, cons, and risks
• Quickly rising rates impacting buyers’ qualifying status during their home search efforts which requires a high degree of transparency and understanding of qualifying criteria such as debt-to-income ratios and reserve requirements

Conclusion: Ensure mobility support aligns with emerging economic realities

Overcoming reluctance to relocate among homeowners who may face declining home values at departure and increasing costs to finance destination home purchases is increasingly coming into focus as a key issue on the horizon. Relying on the expertise of your preferred relocation suppliers who understand today’s unique environment is key.

Read more about how homebuying and mobility trends impact employees and connect with corporate relocation experts and home lending specialists.

U.S. Bank is not affiliated with the organizations mentioned in this publication unless otherwise noted.

Opinions of the organizations mentioned in this publication are their own and not those of U.S. Bank. U.S. Bank facilitates such information for educational purposes only and does not approve or endorse the opinions of the organizations mentioned in this publication.

This information is for real estate information only. This information is not a consumer credit advertisement as defined by Regulation Z. The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results.

U.S. Bank and their representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.