Some Transferees are easing into home ownership gradually in uncertain economic times.
Prior to 2008 all was well on the mortgage
and real estate scene. By late 2007,
however, the landscape that was once
lush deteriorated. In fact, it was damaged
to a point that hadn’t been seen since the
Great Depression.
Talk of a housing bubble was rampant, although it
didn’t seem to hit home with people until “it” happened—
the housing bubble burst. By most accounts,
that happened late in 2007. While collapses in the housing
market aren’t unusual, they historically are confined
to regions (e.g., the Midwest, the South) or states. This
collapse was different. It involved the entire U.S.
With the burst of the housing bubble came a handful
of financial difficulties for homeowners. Many owed
more on their mortgage than their home was worth.
Mortgage foreclosure rates in the U.S. rose to the highest
levels in approximately seven decades. To make
matters even worse, the unemployment rate was high
During this time of economic hardship, people had
difficult decisions to make. With many people choosing
to relocate to find work, they lost equity, had to
sell their home for less than desirable prices—or even
worse, couldn’t sell their home at all. These problems
combined to force many people to reconsider their
housing choices when relocating.
Thus, the temporary renter was born.
Time Considerations
A temporary renter is just what it sounds like: a person
who plans to rent for a short period of time before
eventually purchasing. Having just gone through the
traumatic experience of the housing bubble burst, the
idea to jump right back into a volatile housing market
understandably didn’t appeal to most. Credit blemishes,
reduced equity, and fear that housing prices were
still falling prevented people from wanting to purchase
a new home. Most opted to rent and become familiar
with the new location, taking a test-drive approach.
Beth and Joe Spadafore are a married couple who
fit in the category of temporary renter. Beth, who
works for a national retailer, is the transferee on the
move. The couple owns a home in Michigan and is
moving to Illinois. Instead of purchasing a new home
right away, they will start off by renting.
“Coming from a volatile housing market in
Michigan, we weren’t overly confident in buying
right away,” Beth says. “We will buy a house again,
but we want to be more confident in the housing
market before we do.”
When a transferee relocates from one destination
to another, there is a lot to take into consideration.
It all starts with the relocation benefits the company
provides. These benefits can include household goods,
reimbursement for temporary housing and transportation,
real estate agent assistance, rental assistance, and
new-home closing cost benefits.
For the Spadafore family, renting first makes sense
with the benefits Beth gets through her company.
“Not knowing the area well enough and having 12
months to use our relocation benefits made it easier
to rent first,” she says.
While Beth’s employer allows its employees 12
months to use their relocation benefits, the time
frame differs from company to company. Some
companies are getting creative. For example, one
company has amended its one-year traditional
homeowner relocation program and extended the
benefit to two years. This allows the employee to
move within the first year but retain the home purchase
benefit through the second year.
This approach alleviates market fears. The policy
adjustments were made to give employees the ability
to rent first and not have it affect their eligibility for a
purchase at a later date.
Financial Considerations
From Michigan to Illinois to across the country in
California, fear remains a top reason for renting over
buying. According to Arlene McCort, director of
relocation for Safeway in Pleasanton, CA, people also
choose to rent temporarily because they want to sell
their departure home before purchasing a new one.
“Most people want to sell their home before buying
a new one because that takes a lot of uncertainty
out of the process,” McCort says. “There are
also other reasons to postpone purchasing. Those
reasons can stem from natural disasters like hurricanes
and floods. Before people can sell their home,
they first need to make the necessary repairs to get
it ready to be sold.”
While temporarily renting is a popular choice, it
comes with an expensive price tag.
“Because of short sale or fear of the market, the
rental market in California is competitive, and the
prices keep increasing,” McCort says.
According to Ray Martin of CBS MoneyWatch,
over the past 20 years, average annual rent in the U.S.
has increased about 80 percent at the same time interest
rates for 30-year fixed mortgages have decreased
by 50 percent. In other words, even though it’s
increasingly becoming more expensive to rent than to
purchase, more people are playing it safe by renting.
“Out of every 10 homeowners that relocate, I’d
guess that half want to rent over buy short-term or
permanently,” McCort says. “By renting, you get the
opportunity to try out a few different areas before
making a concrete decision.”
Examples of temporarily renting when relocating
were few and far between prior to the housing bubble
burst. It used to be common practice for a transferee to
settle on purchasing a new home after spending a very
limited amount of time searching. It was a simple decision
because people knew they could go back home
and sell their old home in a short period of time.
People would come to the transfer destination for
the weekend, buy a house, and go back home and sell
their current home right away. There wasn’t a lot of
pressure to sell before buying because people knew
they had equity and could get mortgage financing.
Times have changed.
Decision Time
After relocating to a temporary home for a period that
typically lasts between six and 12 months, McCort and
relocation directors at other companies have found that
people end up buying within a short period of time.
McCort says it comes down to time.
“When relocating, it’s important to have patience
with the transferee and give them time,” McCort says.
“The benefits are still as robust as ever for someone
that wants to be a homeowner, yet patience is the key.”
So, what do you think? Is the fear of the market
worth paying increasingly high rent payments? Are
you a temporary renter who just plans to rent until
the economy gets better?
Is there enough “incent to rent,” or would you
rather take the plunge back into the housing market
and purchase a home?
As the dust settles and economic hardships
begin to subside, the choices transferees have to
make with regard to housing will become clearer.
However, until the anxiety around homeownership
diminishes, temporarily renting will continue to be
a viable option for transferees.
M
Tom Dempsey, CRP, is in business development with
Quicken Loans Relocation. He may be reached at +1 313 373
1725 or by email at
tomdempsey@quickenloans.com
