Archive for the ‘News’ Category

New Home Sales Jump in May

Posted on: June 29th, 2020 by Lawrence Relocation

It’s been a main topic of many of our recent publications…and it apparently holds true.  The gains shown from the latest NAHB’s forecast remain consistent that new home sales will be a leading sector in an emerging economic recovery.

New home sales jumped in May, as housing demand was supported by low interest rates, a renewed household focus on housing, and rising demand in lower-density markets.  Census and HUD estimated new home sales in May at a 676,000 seasonally adjusted annual pace, a 17% gain over April.  However, April pace was 25% lower than the peak, pre-recession rate set in January.

The gains for new home sales are consistent with the NAHB forecast that housing will be a leading sector in an emerging economic recovery.  Consider that despite double-digit unemployment, new home sales are estimated to be 1.9% higher, through May, than the first five months of 2019.

Great news, right?  Additionally, new home sale median price increased in May to $317,900, an almost 2% gain year-over-year.

The count of completed ready-to-occupy new homes is 78,000 homes nationwide and the share of not started homes SOLD increased to 30%, which a positive indicator for future housing starts.

2020 New Home Sale: Median Price Nationwide = $317,900

Source:  Eye on Housing, NAHB

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Director of Relocation Services, by email or by phone at 540-966-4550. 

Is Your Home Sale Program IRS Compliant?

Posted on: June 29th, 2020 by Lawrence Relocation

Given the risk of an adverse IRS audit… (Did that get your attention?)…it is more important than ever that companies re-examine their home sale programs, periodically, to ensure that, in light of the anticipated costs of taking homes into inventory, they are comfortable with the level of inherent risk they are taking.

A little over 30 years ago the IRS issued a landmark ruling on the tax issues associated with relocation programs.  Revenue Ruling 72-339 essentially held as the tax protection for a Guaranteed Buyout program allowing an employer to buy an employee’s home at its market value.  Under the Revenue Ruling the employer could lawfully avoid recognizing the costs associated with this acquisition and resale as compensation to the employee.  A key issue in this ruling was the complete independence of the purchase of the employee’s home and the sale to an outside or third-party buyer.

In 1985 the IRS issued a Private Letter Ruling (PLR 85-22002) expanding the scope to include Amended Value Sales. However, as the name suggests, it was a private ruling for the company requesting it and for two decades the industry had no Revenue Ruling upon which companies could rely. In response, the relocation industry developed a set of guidelines (the 11 Key Elements) aimed at establishing the appropriate procedures that would promote tax-protected status for Amended Value transactions.  In January 2004, the industry made a formal request for a ruling and on November 30, 2005, the IRS issued Revenue Ruling 2005-74.

In Revenue Ruling 2005-74, the IRS:

  • Reaffirmed that an Appraised Value buyout program was tax protected;
  • Confirmed the tax protection afforded by the Amended Value home sale program as described in the submission (which adhered closely to the 11 Key Elements (i.e., “Situation 2”);
  • Described a fact situation (referred to in the Ruling as “Situation 3”) which is essentially a seriously flawed Amended Value program, finding that it did not constitute two separate and distinct sales and lacked a number of the 11 Key Elements;
  • Made it clear that two deeds were not necessary from a Federal tax perspective.

Although the Ruling did not address the Buyer Value Option (BVO) specifically, the structural points in contention, other than an initial determination of value through appraisals, does not vary materially between properly constructed Amended Value and BVO transactions.  Furthermore, the BVO is triggered by an outside offer rather than the issuance of an appraised value offer causing the BVO to follow a more compressed time frame.

What the IRS Looks For

In audits conducted following the issuance of the Revenue Ruling, it is increasingly apparent that IRS examiners are clear on the elements that are necessary to demonstrate a tax-protected home sale program (either Appraised Value or Amended Value) and can now recognize those situations where a program falls outside Situation 2.  The client’s goal is to demonstrate that the program is inside Situation 2.  IRS auditors seem to be particularly hostile towards programs where the timing of the purchase of the employee’s home is designed to be very close to the sale with the outside buyer or contain other directives to shield the client from financial risk (i.e., cancelling the Amended Value Sale or BVO).

Balance of Risk                                                                             

The key for a client’s program is to determine what works for that client.  It’s obvious that the most tax-compliant programs tend to be the most expensive.  However, the planning opportunities come from the fact that the least expensive program need not be the least compliant.  They key for each client is finding where on the “risk continuum” chart they fall and where on the “cost continuum” they fall.  A “risk” discussion with your tax and legal advisors on a regular basis would be recommended.

Client’s electing to administer programs that deviate in any substantial way from Situation 2 in Revenue Ruling 2005-74 should consider that adherence to the 11 Key Elements is probably the best litmus test for tax compliance.  This list of procedures was designed to strengthen the tax case long before the IRS ruled on Amended Value programs, and the IRS ruling analyzed a case created by the industry based on these procedures.  Since 2005 the IRS has conducted numerous audits of both Amended Sales and BVO programs, paying particular attention to certain elements of the transaction.

Bottom Line to Relocation

Of critical importance:

  • are separating the two sales,
  • the actual sequence of events,
  • not relying heavily on inspections,
  • satisfying buyer contingencies prior to amending the sale, and most importantly,
  • the Amended Value Sale or BVO should not be cancelled if the sale to the outside buyer is not consummated.

A pattern of delaying possession of the home by the RMC increases the potential for an adverse IRS finding.  The risk of loss represented in an unconsummated sale, with the employee’s buyer, is exactly the kind of evidence the IRS seeks to substantiate a tax-compliant program.   Each client should therefore re-examine its home sale program—focusing principally on Amended Value and BVO transactions to avoid the possibility of unexpectedly having your program found not to be tax protected.  Ultimately, the question becomes one of risk tolerance for you and your advisors.  Those companies with high tolerance of audit risk (and low tolerance for inventory homes) may well decide to leave things as they are, while companies with a low tolerance for audit risk may wish to revise their programs to comply more closely with Situation 2 and the 11 Key Elements, acknowledging that they may be increasing their risk of taking on more inventory properties.

Lawrence Relocation is not intending to provide tax advice.  Clients should consult their own tax and legal advisors for advice on specific tax matters and risk aversion. 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Director of Relocation Services, by email or by phone at 540-966-4550.

Understanding Lump Sum Programs and Options

Posted on: June 15th, 2020 by Lawrence Relocation

Lump sum relocation programs should never be considered a “shelf-item.” They are not restricted to a one-size-fits-all tactic, nor should they be. Just as any relocation program can be tailored to your company’s business objectives and goals, your lump sum can as well. What’s important is understanding the underlying principles, assumptions, and basics of the lump sum philosophy so companies can make the best decision for their organization.

Four Basic Options Trending Today

  • Flat Lump Sum
    • This option allocates the exact same amount to each transferee, regardless of their status, title or time with the organization. The employee is given the “net” check and they may use these funds as they see fit. Tax assisted.
  • Variable Lump Sum
    • This option is designed based on company-defined objectives. Employers can use whatever benchmarks or basis they choose. A few of the most common benchmarks used are logical and definable, such as:
      • What is the industry standard cost of each benefit?
      • Are they renters or homeowners?
      • Will short-term housing be required and for how long?
      • What is the salary level or compensation plan of the transferee?
      • How many miles to the new destination? How many family (dependents) members are moving?
    • Tax assisted.
  • Managed Lump Sum
    • Often referred to as a “Capped” lump sum, this option helps reduce administrative requirements while the relocation partner (RMC) records and tracks the designated expenses and manages, by priority/cost, the dollars allocated for each transferee. This program keeps the transferee focused on using the dollars wisely where costs/expenses are to be incurred and helps manage those costs using preferred supplier partners. The RMC can alleviate the time-consuming responsibilities from the Employer and help reduce liability for potential costly errors in execution. Tax assisted.
  • Partial Lump Sum
    • This option allows the Employers to offer transferees a lump sum for a portion of their relocation expenses and reimburse the remainder on a receipt-submission basis. Tax assisted.

Whichever option fits your company’s culture and business objectives best, it is important to remember that all relocation expenses, paid on behalf of the employee, are considered taxable income and will be reflected accordingly on the employee’s tax return.

Why Use a Lump Sum Program?

Two primary reasons motivate Employers to utilize a Lump Sum payment.

  • Managing Costs: Flat and Partial Lump Sum Programs can deliver the cost control mechanisms that organizations strive to maintain. Employers may feel it is easier to manage relocation costs and maintain a more hands-off approach.
  • Ease of Administration: The administration of documentation and supplier invoices may be more manageable with lump sum programs. A combination of fewer HR/relocation personnel, and lump sum programs, may allow employers to reduce the level of staff, training, education, and management, to carefully document covered expenses and IRS regulations of each move.

Is it right for you?

Understanding the pros and cons of lump sum programs should be weighed seriously before being incorporated into your relocation program. Consideration should be given to two very important factors:

  • Loss of Productivity: There’s no question, relocation is stressful. When employees are busy organizing and managing own relocation – marketing and selling their home, arranging for movers, locating affordable short-term housing, and purchasing a new home – their minds are not on their job. This causes significant hours of lost productivity.
  • Employee Satisfaction and Retention: Lump sums look great on paper — but the high-level of stress associated with a move — even the smallest “thing” the company does (or does not do) for their relocating employee, during this time, will have more impact, than it would under more routine circumstances, through a more streamlined approach. Long-term retention of these valued employees, when left on their own, if often lessened by using this option.

Bottom Line to Relocation

Many companies utilize a lump sum option in their relocation program. It works, once the ideology of its usage is understood. A smart way of utilizing a lump sum is to embrace it “like” a miscellaneous allowance; intended to cover a specific group of services, while offering full-service attention, to each employee, throughout their move. Reducing administrative time and maintaining cost controls while retaining happy employees makes offering a well-structured lump sum, an attractive “add-in” to any relocation program.

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Director of Relocation Services, by email or by phone at 540-966-4550.

Is a Recession Here? Yes. Does that Mean a Housing Crash? No.

Posted on: June 15th, 2020 by Lawrence Relocation

On Monday, June 8, 2020, the National Bureau of Economic Research (NBER) announced that the U.S. economy is officially in a recession. This did not come as a surprise to many, as the Bureau defines a recession this way:

“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”

Everyone realizes that the pandemic shut down the country earlier this year, causing a “significant decline in economic activity.” Though not surprising, headlines announcing the country is in a recession will cause consumers to remember the devastating impact the last recession had on the housing market just over a decade ago.

The real estate market, however, is in a totally different position than it was then.

As Mark Fleming, Chief Economist at First American, explained:

“Many still bear scars from the Great Recession and may expect the housing market to follow a similar trajectory in response to the coronavirus outbreak. But there are distinct differences that indicate the housing market may follow a much different path. While housing led the recession in 2008-2009, this time it may be poised to bring us out of it.”

Four major differences in today’s real estate market are:

  1. Families have large sums of equity in their homes*
  2. We have a shortage of housing inventory, not an overabundance
  3. Irresponsible lending is no longer the “norm”
  4. Home price appreciation is not out of control

*The first quarter of 2020’s Financial Accounts of the United States , the Federal Reserve’s flow of funds data, show the aggregate values of households’ assets and liabilities in the nation. Households’ real estate assets totaled $30.3 trillion and liabilities totaled $10.7 trillion, making homeowners’ equity $19.7 trillion or 65% of total household real estate. Net household equity, determined by the difference between households’ assets and liabilities, serves as an alternative means of financing for single-family homeowners. For the first quarter, net equity’s share of households’ real estate assets’ value increased from the previous quarter by one quarter of a percentage point. This phenomenon may owe more to home price appreciation as, according to the financial accounts, in the first quarter the outstanding value of home equity loans (including home equity lines of credit but excluding all loans held by individuals) taken out on one-to-four family residential mortgages decreased by $6 billion to $495.3 billion on a non-seasonally adjusted basis.

We must also realize that a recession does not mean a housing crash will follow. In three of the four previous recessions prior to 2008, home values increased. In the other one, home prices depreciated by only 1.9%.  (Source: CoreLogic)

Bottom Line to Relocation

Yes, we are now officially in a recession. However, unlike 2008, this time the housing industry is in much better shape to weather the storm. With unemployment rates declining, job opportunities rising, and the Federal Reserve holding federal rates between 0% – 0.25% the nation continues to deploy the tools needed to underwrite an emerging recovery for the U.S. economy. In particular, the Fed is making sure that credit is available for households and businesses to ensure the smooth operation of markets. Housing and home building are important elements for the transmission of monetary policy and will thus feature as front-line sectors during a recovery.

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Director of Relocation Services, by email or by phone at 540-966-4550.

The Shocking News in the Unemployment Report

Posted on: June 11th, 2020 by Lawrence Relocation

Wow! I’m excited to see last Friday’s, U.S. Bureau of Labor Statistics release of their May Employment Situation Summary. Leading up to the release, most experts predicted the unemployment rate would jump up to approximately 20% from the 14.7% rate announced last month. The experts were shocked.

The Wall Street Journal put it this way, “The May U.S. jobless rate fell to 13.3% and employers added 2.5 million jobs, blowing Wall Street expectations out of the water: Economists had forecast a loss of 8.3 million jobs and a 19.5% unemployment rate.”

In addition, CNBC revealed, “The May gain was by far the biggest one-month jobs surge in U.S. history since at least 1939.”

Here are some of the job gains by industry sector:

  • Food Service and Bartenders = 1,400,000
  • Construction = 464,000
  • Education and Health Services = 424,000
  • Retail = 368,000
  • Other Services = 272,000
  • Manufacturing = 225,000

There’s still a long way to go before the economy fully recovers, as 21 million Americans remain unemployed. That number is down, however, from 23 million just last month. And, of the 21 million in the current report, 73% feel their layoff is temporary. This aligns with a recent Federal Reserve Bank report that showed employers felt 75% of the job losses are temporary layoffs and furloughs.

The Employment Situation Summary was definitely a pleasant surprise, and evidence that the country’s economic turnaround is underway. The data also offers a labor-market snapshot from mid-May, when the government conducted its monthly survey of households and businesses. Many states did not open for business until the second half of May. This bodes well for next month’s jobs report.

Bottom Line to Relocation

We cannot rejoice over a report that reveals millions of American families are still without work. We can, however, feel relieved that we are headed in the right direction, and hopefully, much more quickly than most anticipated. Recruiting and hiring will increase, as will relocation activity. Relocation will help support the housing market and buyers and sellers will feel more confident about their upcoming relocation opportunities again.

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Relocation Services Director, by email or by phone at 540.966.4550.

Unemployment – Is There A Ray of Light Ahead?

Posted on: June 5th, 2020 by Lawrence Relocation

On June 5, 2020, the Bureau of Labor Statistics will release the latest Employment Situation Summary, which will include the most current unemployment rate. It will be a horrific number. Many analysts believe unemployment could be greater than 20%. These numbers represent families across the nation that are not sure when (or if) they will return to work. The emotional impact on these households is devastating.

Two things that will be interesting to learn are:

1. Which types of jobs have been most heavily impacted?
2. Will these be gender specific, simply due to the nature of the job?

According to Patricia Cohen and Tiffany Hsu with the New York Times:

“The last time the United States went through an economic downturn, some economists called it a “mancession,” as most of the job losses – in manufacturing, construction and finance – were shouldered by men.

This time around, the economic fallout from the pandemic is threatening to derail the careers of an entire generation of working women, in what some are calling a “shecession.”

The pandemic has dramatically changed the way Americans work and care for children, and women are carrying an unequal share of the burden. Women are more likely to have lost a job and are more likely to care for children at home. Even among married couples, women currently provide 70 percent of the childcare during work hours.

As childcare and babysitting options have evaporated, women say they have little choice but to give up jobs, or work part-time, to manage their responsibilities at home. And returning to the work force will be especially hard in the recession, as more out-of-work people compete for a reduced pool of jobs.

The impact on working mothers could last a lifetime, reducing their earning potential and robbing them of future work opportunities.”\

There are, however, some small rays of light shining through in the overall unemployment issue. Here are three:

1. The actual number of unemployed is less than many are reporting – It is true that over the last ten weeks, over 40.7 million people have applied for unemployment. It is also true, that many of those people have already returned to work or secured new employment.

2. Of those still unemployed, most are temporary layoffs – Over 90% of those unemployed believe their status is temporary. It will be interesting to see in this new report where things stand. A recent survey by the Federal Reserve Bank showed that employers believe over 75% of job losses are temporary. This means 3 out of 4 people should be returning to work as the economy continues to recover.

3. Those on unemployment are receiving assistance – In a recent study by Becker Freidman Institute for Economics, 68% of those who are eligible for unemployment insurance receive benefits that exceed lost earnings, with 20% receiving benefits at least twice as large as their lost earnings.

Bottom Line to Relocation

These past few months have been extremely hard-hit with the Covid-19 pandemic, which has levied a harsh blow. This resulted in the global stoppage of movement of talent, which created economic stress to our industry and unemployment across the country. But, the relocation community will continue to rally. In talking with many of my relocation peers, we agree that many corporations, along with their relocation partners, are quickly working to get employees safely moved around the globe, while creating diverse policies that set a strong foothold for future pandemics or adverse global situations.

Relocation continues in good times and bad – it’s just making sure you are as prepared as possible to ensure the safety, growth, and talent needs of your company and their employees are being supported appropriately.

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Director of Relocation Services, by email or by phone at 540.966.4550.

Most Vulnerable Housing Markets in the U.S. Today

Posted on: June 5th, 2020 by Lawrence Relocation

As we have recently shared, the housing market is poised to help our economic recovery take a strong step forward with most economists predicting this to occur as early as the second half of 2020. With this said, there is still however, considerable risks across states with economies heavily reliant on leisure, entertainment, and personal services being most vulnerable.

Many analysts tend to agree and note that entertainment (including accommodation and restaurants), retail (except grocery and building materials), personal services and transportation (air, train, water and sightseeing tours) are among the hardest hit sectors and will most likely experience lingering elevated levels of unemployment. If this premise is correct, states with economies heavily reliant on leisure, entertainment, retail, and personal services are particularly vulnerable. Nearly one-quarter (23.5%) of the U.S. labor force (including self-employed) work in these high unemployment risk sectors as of 2018. The share of households with at least one member working in the high unemployment risk industries is even higher, with a national average of 28%.

While the labor force in most states have similar shares of vulnerable jobs, the workforce in Nevada, Florida, and Hawaii face much higher, prolonged unemployment risks. As of 2018, a staggering 41% of Nevada’s labor force was in high unemployment risk industries, including over 23% in entertainment. Hawaii and Florida had 30% and 28% respectively. At the other end the District of Columbia, North Dakota and Wisconsin rated 17%, 19% and 20%. Similarly, Virginia Nebraska, Vermont, Connecticut, Maryland, Massachusetts and Iowa have shares under 21%.

Across the U.S. renters are more exposed to unemployment risks. 31% of all renter households have at least one member working in the vulnerable sectors. Among homeowners, the share is 26%. Once again, Nevada and Hawaii have the highest shares of both. In Nevada 44% of renters and 38% of homeowners had at least one household member working in high unemployment risk industry. For Hawaii, these shares were slightly above 39% and 35% respectively. In addition to Nevada and Hawaii, the rental markets in Utah, Arizona, Florida, and Colorado are more vulnerable to high unemployment risks with a share of renter households with at least one member at risk of prolonged unemployment at 35%. Populous California, known for lower homeownership rates, stand out for registering the highest number of high-unemployment risk renters – close to 2 million – or one out of three renter households.

Homeowners share similar risks due to specific industry sectors in states such as Utah (31%), Alaska, Rhode Island, Montana, Delaware and Texas with 28% homeowners at risk of prolonged unemployment.

While renters are more vulnerable to unemployment woes, the majority of households with at least one member in high-unemployment risk industries (60%) are owners – simply because close to two-thirds of U.S. households are owners.

The ACS data also suggest that young adults under the age of 35 are at a higher risk of prolonged unemployment. Forty-three percent of the youngest workers under the age of 25 and almost a quarter of 25- to 35-year old workers were in the high-unemployment risk sectors. Together they account for almost half (49%) of all workers in the most vulnerable industries. Long-term job losses experienced by young adults will undoubtedly suppress their household formation rates that had just started to rise before the coronavirus pandemic struck.

Note: The statistics shown are based on the 2018 American Community Survey (ACS), the largest household survey in the U.S.

Bottom Line to Relocation

For corporations, whose primary industry is related to those discussed above, furloughs, lay-offs, and reduced staffing will continue to cause stress to the bottom-line and their potential relocation activity. Even companies whose products and services touch on these business sectors will, unfortunately, feel the same pinch. The good news is, as economists are predicting, this pain should be short-lived. Economic indicators continue to suggest that real estate and construction will go through a relatively fast V-shaped rebound once the shutdown orders are lifted. Why is this important? Because both business sectors are two of the top leading indicators the economy is turning, and life is returning to a somewhat normal existence.

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Director of Relocation Services, by email or by phone at 540.966.4550.

Will Home Values Appreciate or Depreciate in 2020?

Posted on: June 5th, 2020 by Lawrence Relocation

With the housing market staggered, to some degree, by the health crisis the country is currently facing, some potential purchasers are questioning whether home values will be impacted. The price of any item is determined by supply as well as the market’s demand for that item.

Each month the National Association of Realtors (NAR) surveys “over 50,000 real estate practitioners about their expectations for home sales, prices and market conditions” for the REALTORS Confidence Index.

Their latest edition sheds some light on the relationship between seller traffic (supply) and buyer traffic (demand) during this pandemic.

Buyer Demand

The map below was created after asking the question: “How would you rate buyer traffic in your area?” The darker the blue, the stronger the demand for homes is in that area. The survey shows that in 34 of the 50 U.S. states, buyer demand is now ‘strong’ and 16 of the 50 states have a ‘stable’ demand. With demand still stronger than supply, home values should not depreciate.

Seller Supply

The index also asks: “How would you rate seller traffic in your area?” As the map below indicates, 46 states and Washington, D.C. reported ‘weak’ seller traffic, 3 states reported ‘stable’ seller traffic, and 1 state reported ‘strong’ seller traffic. This means there are far fewer homes on the market than what is needed to satisfy the needs of buyers looking for homes right now.

As the map above indicates, 46 states and Washington, D.C. reported ‘weak’ seller traffic, 3 states reported ‘stable’ seller
traffic, and 1 state reported ‘strong’ seller traffic. This means there are far fewer homes on the market than what is needed to
satisfy the needs of buyers looking for homes right now.

What are the experts saying?

Here are the thoughts of two industry experts on the subject:

Mark Fleming, Chief Economist, First American:
“Housing supply remains at historically low levels, so house price growth is likely to slow, but it’s not likely to go negative.”

Freddie Mac:“Two forces prevent a collapse in house prices. First, U.S. housing markets face a large supply deficit. Second, population growth
and pent up household formations provide a tailwind to housing demand.”

Bottom Line for Relocation

Looking at these maps and listening to the experts, it seems that prices will remain stable throughout 2020. If you’re relocating
employees are concerned about home prices and are needing to list their home, our broker network of highly trained relocation
agents will know exactly what each market’s demands are. This is why we encourage our corporate clients to reassure their
transferees to partner with our preferred brokers. Our relocation agents specialize in working with relocating employees. With
shelter-in-place restrictions easing across the country, hiring the right agent is paramount. Educating the homeowner about key
market strategies will help them understand the difference of just “being on the market” vs. “being in the market” at such a critical
time as this.

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Director of Relocation Services, by email or by phone at 540.966.4550.

Housing Market Positioned to Help Bring Back the Economy

Posted on: June 5th, 2020 by Lawrence Relocation

All eyes are on the American economy. As it goes, so does the world economy. With states beginning to reopen, the question becomes: which sectors of the economy will drive its recovery? There seems to be a growing consensus that the housing market is positioned to be that driving force, the tailwind that is necessary.

Some may question that statement as they look back on the last recession in 2008 when housing was the anchor to the economy – holding it back from sailing forward. But even then, the overall economy did not begin to recover until the real estate market started to regain its strength.

As Mark Fleming, Chief Economist of First American, recently explained: “Many still bear scars from the Great Recession and may expect the housing market to follow a similar trajectory in response to the coronavirus outbreak. But there are distinct differences that indicate the housing market may follow a much different path. While housing led the recession in 2008-2009, this time it may be poised to bring us out of it.”

Fleming is not the only economist who believes this. Robert Dietz, Chief Economist for the National Association of Home Builders, in an economic update last week explained: “As the economy begins a recovery later in 2020, we expect housing to play a leading role. Housing enters this recession underbuilt, not overbuilt…Based on demographics and current vacancy rates, the U.S. may have a housing deficit of up to one million units.”

Not only do our housing experts believe the economy is ripe for recovery, but even more so, do many of the country’s top economists. They feel confident that recovery should start in the second half of 2020. As businesses slowly start to reopen, moving forward in strategic phases, business activity will help bring our nation back to life.

“I think there’s a good chance that there’ll be positive growth in the third quarter. And I think it’s a reasonable expectation that there’ll be growth in the second half of the year… So, in the long run, I would say the U.S. economy will recover. We’ll get back to the place we were in February; we’ll get to an even better place than that. I’m highly confident of that. And it won’t take that long to get there.” Jerome Powell, Federal Reserve Chairman

We’re certainly not out of the woods yet, but clearly many experts anticipate we’ll see a recovery starting this year. It may be a bumpy ride for the next few months, but most agree that a turnaround will begin sooner rather than later. During the planned shutdown, as the economic slowdown pressed pause on the nation, many potential buyers and sellers put their real estate plans on hold. That time coincided with the traditionally busy spring real estate season. As we look ahead at this economic recovery and we begin to emerge back into our communities over the coming weeks and months, I would expect to see a strong, compact, and hectic “late spring market” hit.

Bottom Line to Relocation

Circling back to the strong impact real estate will play, every time a home is sold it has a tremendous financial impact on local economies. As the real estate market continues its recovery, it will act as a strong tailwind to the overall national economy. As we all know in relocation, a strong housing market means relocations will continue to prosper, overall costs to corporations should see a slight decrease due to fewer requests for expensive exceptions to policy (e.g. extending corporate housing), and transferees will be more enthusiastic to accept a relocation when they have a home to sell and one to purchase when both local markets’ housing is strong.

What is it that makes the housing market so strong? Three important elements spearhead this recovery:

First, the financial requirements and regulatory changes made to strengthen our mortgage markets after the last recession,

Second, higher credit scores and larger down payments being required to qualify and purchase a home and,

Third, the nationwide shortage of available inventory as discussed above.

This time, to our “relocation delight,” the housing market was in great shape when the virus hit.

 

Have questions or want to learn more about Lawrence Relocation Services please contact Ginny Taylor, CRP/SGMS, by email or by phone at 540.966.4550.

Economist Forecast Recovery to Begin Soon

Posted on: June 4th, 2020 by Lawrence Relocation

With the U.S. economy on everyone’s minds right now, questions about the country’s financial outlook continue to come up daily. The one that seems to keep rising to the top is: when will the economy begin to recover? While no one knows exactly how a rebound will play out, expert economists around the country are becoming more aligned on when the recovery will begin.

According to the latest Wall Street Journal Economic Forecasting Survey, which polls more than 60 economists on a monthly basis, 85.3% believe a recovery will begin in the second half of 2020.

There seems to be a growing consensus among these experts that the second half of this year will be the start of a turnaround in this country.

Chris Hyzy, Chief Investment Officer for Merrill notes: “We fully expect the economy could begin to pick up in late
June and July with a strong recovery in the fourth quarter.”

In addition, five of the major financial institutions are also forecasting positive GDP in the second half of the year. Today, four of the five expect a recovery to begin in the third quarter of 2020, and all five agree a recovery should start by the fourth quarter.


As reported by S&P in March, home price indexes across 19 metro areas reported positive growth rates ranging from 1.7% (Dallas, TX) up to 16.5% (Tampa, FL). With the national average sitting at 5.7%, twelve of the metro areas reported on exceeded this number. The vast majority of economists, analysts, and financial institutions are in unison, indicating an economic recovery should begin in the second half of 2020. Agreement among these
leading experts is stronger than ever.

Bottom Line to Relocation

As previously discussed, in earlier articles, housing is poised to help lead the way back for our economy. This one factor alone will create a tremendous boost for relocating families who may have been hesitate about accepting a move. A strong economy equals strong home prices, increasing overall relocation acceptance.

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Relocation Services Director, by email or by phone at 540-966-4550.

Confused About the Economic Recovery? Here’s why.

Posted on: June 4th, 2020 by Lawrence Relocation

As we continue to work through the health crisis that plagues this country, more and more conversations are turning to economic recovery. While we look for signs that we’ve reached a plateau in cases of COVID-19, the concern and fear of what will happen as businesses open again is on all our minds. This causes confusion about what an economic recovery will look like. With this in mind, it’s important to understand how economists are using three types of sciences to formulate their forecasts and to work toward clearer answers.

1. Business Science – How has the economy rebounded from similar slowdowns in the past?

2. Health Science – When will COVID-19 be under control? Will there be another flareup of the virus this fall?

3. People Science – After businesses are fully operational, how long will it take American consumers to return to normal consumption patterns? (Ex: going to the movies, attending a sporting event, or flying).

Sam Khater, Chief Economist at Freddie Mac, says: “Although the uncertainty of the crisis means forecasts of economic activity are more unclear than usual, we expect that most of the economic damage from the virus will be contained to the first half of the year. Going forward, we should see a recovery starting in the second half of 2020.”

This past week, the Bureau of Economic Analysis released the advanced estimate for Gross Domestic Product (GDP) for the first quarter of 2020. That estimate came in at -4.8%. It was a clear indicator showing how the U.S. economy slowed as businesses shut down and consumers retreated to their homes in fear of the health crisis and of contracting COVID-19.

Experts agree that Q2 of 2020 will be an even greater slowdown, a sign more businesses are feeling the effects of this health crisis. The same experts, however, project businesses will rebound, and a recovery will start to happen in the second half of this year.

Bottom Line for Relocation

It’s obvious that as time goes on, we’ll have more clarity around what the true economic recovery will look like, and we’ll have more information on the sciences that will affect it. As the nation’s economy comes back to life and businesses embrace new waves of innovation to serve their customers, the renewal of relocations will pick up and will likely increase before the end of 2020 to make up for lost time. A good question to ask yourself now, is – “what should our policy and benefits look like?” Is a policy revamp and update to meet changes to how your business will operate going forward needed?

The American spirit of grit, growth, and prosperity will be alive and well. Will you be ready for it?

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Relocation Services Director, by email or by phone at 540.966.4550

What Impact Might COVID-19 Have on Home Values?

Posted on: June 4th, 2020 by Lawrence Relocation

A big challenge facing the housing industry is determining what impact the current pandemic may have on home values. Some buyers are hoping for major price reductions because the health crisis is straining the economy.

The price of any item, however, is determined by supply and demand, which is how many items are available in relation to how many consumers want to buy that item.

In residential real estate, the measurement used to decipher that ratio is called months supply of inventory. A “normal market” would have 6-7 months of inventory. Anything over seven months would be considered a buyer’s market, with downward pressure on pressure on prices.

Going into March of this year, the supply stood at three months – a strong seller’s market. While buyer demand has decreased rather dramatically during the pandemic, the number of homes on the market has also decreased. The recently released Existing Home Sales Report from the National Association of Realtors (NAR) revealed we currently have 3.4 months of inventory. This means homes should maintain their values during the pandemic.

NAR’s information is consistent with the research completed by John Burns Real Estate Consulting, which recently reported: “Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”

What are the Experts Saying?

Here’s a look at what two experts recently reported on the matter:

Freddie Mac:
The fiscal stimulus provided by the CARES Act will mute the impact that the economic shock has on house prices. Additionally, forbearance and foreclosure mitigation programs will limit the fire sale contagion effect on house prices. We forecast house prices to fall 0.5 percentage points over the next for quarters. Two forces prevent a collapse in house prices. First, as we indicated in our earlier research report, U.S. housing markets face a large supply deficit. Second, population growth and pent up household formations provide a tailwind to housing demand. Price growth accelerates back towards a long-run trend of between 2 and 3% per year.

Mark Fleming, Chief Economist, First American
The housing supply remains at historically low levels, so house price growth is likely to slow, but it’s unlikely to go negative.

Bottom Line for Relocation:

Even though the economy has been placed on pause, it appears home prices will remain steady throughout the pandemic. Relocating employees should remain confident in the market price their home will bring. It is imperative, however, for the seller to price strategically and aggressively to be able to move quickly and to recognize they do not have the luxury of waiting to see what the market will do.

Corporations should feel some relief in exceptions to benefits, such as extending corporate housing needs, as the pandemic’s curve flattens, and real estate is once again transacted as in non-pandemic times.

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, CRP/SGMS, by email or by phone at 540.966.4550.

Recession? Yes. Housing Crash? No. Relocation? Stable.

Posted on: June 2nd, 2020 by Lawrence Relocation

In April 2020, more than 90 percent of Americans were under a shelter-in-place order and many experts warned that the American economy was heading toward a recession, if it was not in one already. What does the U.S. housing market, and unemployment mean to relocation programs? Read this post from April 2020 to learn more.

What is a Recession?

According to the National Bureau of Economic Research: “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” COVID-19 hit the pause button on the American economy in the middle of March. Goldman Sachs, JP Morgan, and Morgan Stanley are all calling for a deep dive in the economy in the second quarter of this year. Though we may not yet be in a recession by the technical definition of the word today, most believe history will show we were in one from April to June. You might ask, “how will unemployment figure in?” Goldman Sachs projects the unemployment rate to be 15% in the third quarter of 2020, flattening to single digits by the fourth quarter of this year, and then just over 6% percent by the fourth quarter of 2021. Not ideal for the housing industry, but manageable. However, with the help being given to those who have lost their jobs and the fact that we’re looking at a quick recovery for the economy after we address the health problem, the housing industry should be fine in the long term.

Does that mean we’re headed for another housing crash?

Many fear a recession will mean a repeat of the housing crash that occurred during the Great Recession of 2006-2008. The past, however, shows us that most recessions do not adversely impact home values. Doug Brien, CEO of Mynd Property Management, explains: “With the exception of two recessions, the Great Recession from 2007-2009, & the Gulf War recession from 1990-1991, no other recessions have impacted the U.S. housing market, according to Freddie Mac Home Price Index data collected from 1975 to 2018.”

What are the experts saying this time?

This is what three economic leaders are saying about the housing connection to this recession:

Robert Dietz, Chief Economist with NAHB “The housing sector enters this recession underbuilt rather than overbuilt…That means as the economy rebounds – which it will at some stage – housing is set to help lead the way out.”

Ali Wolf, Chief Economist with Meyers Research “Last time housing led the recession…This time it’s poised to bring us out. This is the Great Recession for leisure, hospitality, trade and transportation in that this recession will feel as bad as the Great Recession did to housing.”

John Burns, founder of John Burns Consulting, also revealed that his firm’s research concluded that recessions caused by a pandemic usually do not significantly impact home values: “Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”

Bottom Line Impact on Relocation

If we’re not in a recession yet, we’re about to be in one. This time, however, housing will be the sector that leads the economic recovery. This too, will help keep relocation programs healthy and moving forward much unlike the Great Recession of 2008.

For the relocation industry, this is promising news! Let’s look at four important “why” factors:

Appreciation: Leading up to the 2008 crash, we had much higher appreciation in this country than we see today. In fact, the highest level of appreciation most recently is below the lowest level we saw leading up to the crash. Prices have been rising lately, but not at the rate they were climbing back when we had runaway appreciation.

Mortgage Credit: We’re nowhere near the levels seen before the 2008 housing crash when it was very easy to get approved for a mortgage. After the crash, however, lending standards tightened and have remained that way leading up to today. Mortgage rates are still low, and homeowners are rushing to refinance before the recession hits and the possibility of being unemployed becomes a reality.

Equity: Today, 53.8% of homes across the country have at least 50% equity. In 2008, when 100% financing was the “rage” homeowners walked away when they owed more than what their homes were worth. With the equity homeowners have now, they’re much less likely to walk away from their homes.

Undersupply of Homes: One of the causes of the housing crash in 2008 was an oversupply of homes for sale. Today, we see a much different picture. We don’t have enough homes on the market for the number of people who want to buy them. Traditionally, a healthy and balanced market is 6 months of inventory… across the country, we have less than 6 months of inventory, an undersupply of homes available for interested buyers.

 

Have questions or want to learn more about Lawrence Relocation, please contact Ginny Taylor, CRP/SGMS, by email or by phone at 540.966.4550