The Challenges of Relocating Prospective Homebuyers in Today's Housing Market

Incentivizing homeowners to relocate has become more challenging due to the current housing market conditions. Rising home prices since the start of the COVID-19 pandemic and increasing interest rates are the main drivers.  

The Mortgage Rate Dilemma

Many homeowners locked in low mortgage rates of 2-4% before the pandemic. Now, with current rates hovering around 6-7%, the cost of borrowing has increased significantly for those looking to buy a new home with a similar or larger mortgage.

Rising Housing Costs

Home values have surged in many cities over the past few years. While this boosts equity for sellers, it also means the next home they buy will be more expensive. For renters aspiring to become homeowners, saving for a down payment and affording the subsequent mortgage payments is even more daunting.

Lack of Inventory and Supply

The combination of high mortgage rates and soaring housing costs has slowed the normal market activity that allows people to buy their first home, upgrade, or downsize. As my Economics 101 class taught me: when supply is low, prices go up.

Real-World Example: Moving from Raleigh, NC to Boston, MA

I experienced this firsthand when I moved from Raleigh, NC, where I bought a home in late 2019, to Boston, MA, in 2021. The difference in home prices between the two cities was stark, as shown in the tables below.

It’s clear that the income required to afford a home has steadily increased in both locations since 2021. For me, buying in Boston in 2021 wasn’t feasible. The equity from selling my Raleigh home didn’t come close to offsetting the high home prices in Boston. I would have needed around $435,000 as a down payment to keep my mortgage costs the same as they were in Raleigh.

For renters, the income needed to buy a home has increased significantly—about 1.5 times more than what was required in 2020-2021. This, along with higher down payments, may necessitate additional assistance.

Potential Solutions and Considerations

There are several strategies companies can use to assist relocating employees and hires:

Incentives to Rent

Encouraging employees to rent instead of buy can be a temporary solution. While many programs focus on home purchase assistance, they often overlook renters. Offering support for renting can prevent employees from leaving money on the table.

Mortgage Interest Differential Assistance (MIDA)

Some companies partner with preferred mortgage lenders to offer MIDA, which uses the interest rate difference between an employee’s old and new mortgage to offset the increased cost. This helps alleviate some of the burden of securing a new mortgage at higher rates.

Home Purchase Differentials

When relocating to high-cost areas, companies can provide additional funds for down payments, typically calculated based on the desired percentage of equity in the new home versus the current home. This can make buying a home in a new location more achievable.

Final Thoughts and Takeaways

• The combination of rising interest rates and home prices makes it challenging to relocate employees and non-local hires.
• High costs and low inventory are keeping prices elevated, despite rising interest rates over the past few years. This may subside as interest rates decrease.
• While there are tools available to assist with relocation, there's no one-size-fits-all solution. For example:
  • Incentives to rent don’t help those looking to settle down permanently.
  • MIDA only addresses the ongoing incremental costs of higher mortgage rates, and not all lenders are participating in such programs.
  • Home purchase differentials help with buying, but ongoing housing expenses may still be significantly higher.

If you’re facing these challenges or want to learn more about supporting relocating homeowners, we’re here to help.

Contact us to explore more solutions and resources!