A Guest Blog Post from
Craig Selders, SGMS, SCRP
President, Paragon Relocation
So what is the current state of the economy and the real estate market? And how does this affect relocation policy?
The U.S. economy has taken quite the beating over the last few years and, by some accounts, now seems to be improving. This improvement can have a positive effect on the willingness or desire of corporate employees to relocate for the benefit of the company.
U.S. economic indicators are encouraging, but we are by no means out of the recession. Fourth quarter 2012 annual GDP growth rate was actually not a growth rate—it was -0.1%. This is the first shrinkage in the GDP rate in three years. Economists believe this is mainly due to a decrease in military spending, which was down 22%, representing the biggest drop since 1972. The full year GDP growth rate in 2012 was 2.2%, compared with 1.8% in 2011. A “normal” GDP growth rate is 3% or greater. Although private industry added 1.2 million jobs in 2012, the unemployment rate is still too high at 7.6%. Additionally, a large number of the unemployed have taken themselves out of the market, so actual unemployment is higher.
But is the economy poised for growth? In many respects, it depends on the consumer. The consumer spend is approximately 70% of GDP, so if consumer spending decreases, then the overall economy will feel the pain. The good news is that consumer spending did increase in Q4 2012 by 2.2%, and since interest rates are low, spending and borrowing have increased. Sales of new and existing homes are up; as are automobile sales. Borrowing is up, which means people have more discretionary income, feel better about the economy and their jobs, and are willing to take on new debt. So signs are encouraging that the consumer is spending, which drives the economy. The bad news is that the payroll tax has increased by 2%, which means disposable income is down. This could translate into less spending, which so far in 2013, we have not seen.
To put things into perspective, from 1950-1999, average GDP growth rates were 3.6%, and unemployment averaged 5.7% during this period. From 2000–present, GDP has averaged less than 2%, and unemployment 6.3%. What does this mean? Simply that post World War II development and spending does not continue forever, and we now see less advancement in GDP growth rates, even though we see some efficiencies and advancements in society such as robotics and technology…but not enough to fuel solid growth. We also see excessive government debt and a fragile banking system, all of which can have macroeconomic impact on the economy.
So how does this translate into the real estate market, which is so critical to the potential relocation of company employees? In this area of the economy, there is finally some good news. After being in the doldrums the past three years, we are beginning to see the fruits of improved real estate markets:
- According to the S&P Case Shiller report for January, 2013, for the 20 composite cities across the U.S., the average appreciation gain was 8.1% over the past 12 months.
- According to the National Association of Realtors, the average home price in the U.S. in 2012 of $173,600 was up 12.3% from 2011.
- At the end of December, there were 1.74 million homes for sale in the U.S., the lowest since 1999.
- New home sales in January, 2013, were 29% higher than January, 2012.
- On average, homes are selling in 71 days vs. 99 days one year ago, per the Wall Street Journal.
- And, distressed sales are down 35% compared to last year—a strong sign that foreclosures are clearing the market; however, distressed sales still represent 23% of the total market.
Some of the cities that were not doing very well are now doing exceedingly well. For example, Phoenix, which got hit very hard by recessionary factors and houses lost a great deal of value, had the highest year-over-year gain of 23.2%, for the 12-month period ending January, 2013. Phoenix also had 540 “flash” sales in the past five months—or homes selling in 24 hours or less—which is higher than any other city in the country. So we are seeing strong appreciation in some markets. Others—such as Atlanta and Detroit—continue to improve but still lag in the market. And yes, Las Vegas is coming back as well with a 12-month appreciation rate of 15.3%. All 20 cities on the Case-Shiller report showed year-over-year gains—the first time this has happened in several years.
What does all this mean relative to employee mobility?
According the Worldwide ERC®’s 2012 U.S. Transfer Volume and Cost Survey, 91% of corporate respondents cited real estate issues as predominant reasons for resistance to transfer. But this may change in the next survey. As home values begin to return to more normal levels, equity positions will increase, and people can sell their homes more rapidly. This means they will be more likely to relocate since they will be in a financial position to purchase a new home in the new location. It also means that some of the issues of the past may begin to wane—such as large loss on sale payments; longer duplicate housing payments; less need for longer term temporary housing stays, etc.
But it also means there may be at time in the near future where it is back to the fundamentals of relocation policy. The inability to move due to negative equity positions may be replaced with the more commonly known issues such as family resistance to moving; moving to higher cost locations; and spouse/partner reluctance to leave a job. Addressing these important issues will be critical to solving near and longer term relocation challenges.
As can be seen, many macroeconomic factors in the U.S. economy are improving, which has led to an improvement in the U.S. real estate market. Demand is strong for housing in many markets, and in some markets we are seeing multiple bid situations. This means that real estate and housing in general will become less of an issue for transferees than over the past three or four years. In times of change, it is advisable to update mobility polices to ensure contemporary issues are properly addressed—and corporations mitigate the reluctance to transfer.
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