With summer behind us, it’s time to look at the market forces in play for fall. Of course, the big news all summer has been inflation. Has inflation peaked, or are we in for more? While we know the rate exceeds 8% today, it’s hard to say with certainty where it will go. We do know, however, that the FED has announced an aggressive stance on interest rates as a means to tamp down inflation. This will, of course, increase mortgage rates and could cool the housing market.
This news is joined by some additional market trends we will see this fall. Below please find those market updates that we expect to impact relocation.
Mortgage Rates: The average rate on 30-year fixed-rate mortgages in Freddie Mac’s survey has risen over 6% for the first time since November 2008. In the week ending September 22, a 30-year fixed-rate mortgage was 6.29%, up from 2.88% a year earlier, according to housing-finance agency Freddie Mac. For comparison, the rate on the 30-year mortgage averaged 5.22% in August.
At the time of our last update, the Fed’s stance on interest rates was somewhat ambiguous. Today, we are confident that the Fed’s stance is aggressive. With inflation running at a high mark, the Federal Reserve recently increased the target for the federal funds rate still another 0.75% to a range of 3% – 3.25%. The Federal Reserve also released median projections showing that they anticipate the target rate to be 4.4% by the end of 2022. The Fed's target policy rate is now at its highest level since 2008 - and new projections show it rising to the 4.25%-4.50% range by the end of this year and ending 2023 at 4.50%-4.75%.
As the Fed continues to increase its rates, we can expect mortgage rates to increase in step. It’s expected that this will cool a red-hot real estate market, but to what extent? XONEX will be watching this closely as mortgage buydowns may come back as a meaningful benefit.
Real Estate: While the National Association of Realtors reports that the median existing home prices rose 7.7% in August from a year earlier to $389,500, there are leading indicators afoot to suggest a cooling market. According to Money.com, less competition, lower prices, and more inventory have allowed homebuyers to be more discerning. When you add rising mortgage rates to these factors, it seems logical to expect some kind of slowdown, but experts are split on whether we will see a cooling or a firmer correction. Either way, there is no indication that a crash is imminent.
Of interest, Money.com reports more potential homebuyers are backing out of purchases, especially in some of the pandemic’s hottest housing markets. Not surprisingly, this is happening in markets that have been screaming hot since the pandemic – Florida, Nevada, Georgia, Arizona, and Texas. If buyers are sensing they can get a better deal elsewhere and/or if a spiking mortgage rate wiped out affordability, they will move on to other options. What does this mean for your relocation program? This still remains to be determined, but a cooling market is not necessarily a bad thing. We have seen many exceptions for temporary living and storage needs as transferees compete for homes. This may subside as competition eases.
Household Goods: While gasoline prices continued to ease in the first half of September, with the national average sliding to $3.69 per gallon for regular, diesel fuel remains high and is up 84% year over year, according to UniGroup. With the busy summer season behind us, capacity is expected to increase. The big item to watch, however, is the AB5 legislation coming out of California that threatens to upend the use of independent owner-operators by California trucking companies. Since the household goods industry is comprised of independent owner-operators, this legislation takes aim at the heart of the moving industry.
Lumber: According to the Wall Street Journal, lumber prices have fallen to their lowest level in more than two years, bringing two-by-fours back to what they cost before the pandemic building boom and pointing to a sharp slowdown in construction. Lumber futures ended Tuesday at $429.30 per thousand board feet, down about one-third from a year ago and more than 70% from their peak in March.
Lump Sum / Miscellaneous Expense Allowances: At the time of our last update, inflation was rising but had not yet hit today's high. As the inflation rate continues to hover between 8-9%, it’s likely time to review lump sum and miscellaneous allowance budgets to ensure enough monies to cover services that are now more expensive.
As the war for talent rages on, relocation benefits may take center stage in your talent acquisition discussions. While we have a much better view today than we did earlier in 2022, we advise that companies remain as flexible as possible. Relocation policies may need to be adjusted incrementally, so as not to go too far in any direction should the pendulum continue to swing. Please be on the lookout for more XONEX updates, including policy ideas and advice on how to best manage market changes.