A group of colleagues from WHR Group recently attended the 7th Annual Wisconsin Residential Real Estate Summit at The Wisconsin Club’s City Club in downtown Milwaukee. This event, put on by the Marquette University Center for Real Estate, aims to bring together some of the leading real estate experts from our local Wisconsin markets and those from around the country. Topics included local demographic trends, the outlook of the residential housing market, home affordability and new construction, and predictions for 2019.

Going into the event, I had two perspectives in mind.

1. I’m a homeowner. Like many people, my home is my largest financial asset. Naturally, I was incredibly interested to hear about the potential effects on my own financial situation.
2. Since WHR Group is an employee relocation management company, a main revenue stream comes from buying and selling homes throughout North America. I was very interested to hear if there were any major impacts on the business.

We heard from a variety of speakers such as Mr. David Belman (President of Belman Homes), Dr. Douglas Ducan (Senior Vice President and Chief Economist at Fannie Mae), and Ms. Vickie Kelsall (Regional Manager at Century21). All speakers brought their unique perspectives on the current housing climate, and I was impressed with the enthusiasm and knowledge that poured out within a mere three hours. An overwhelming theme of the day was supply versus demand.

Supply

The current supply of the housing market is inadequate given today’s demand. In general, there are three areas to look for homes: foreclosures, new construction, and the existing home market. Each of these segments has seen dramatic changes throughout the last year and will continue to be watched throughout 2019.

Foreclosures

The volume of annual foreclosed homes is at pre-recession numbers. In 2007, there were over 28,000 foreclosures; 2018 had only about a fourth of that amount. This is a massive amount of missing inventory that we’ve been accustomed to seeing for the past fifteen years or so.

New Construction

Another area to look at for inventory is new construction homes. Builders such as David Belman, President of Belman Homes, have had a plethora of issues to deal including new tariffs on materials such lumber and quartz coming from countries like Canada and China; these new tariffs increase the overall cost of goods.

They’ve also seen a significant decrease in labor as new generations entering the workforce tend to be more focused on technology than getting their hands dirty. As labor becomes scarce, it also becomes more expensive. Legislation is another big hurdle for builders. Environmental and safety requirements are costly and cause huge delays in the development of new subdivisions.

Due to the combination of these increased costs, today’s homebuyers are quickly priced out of the new construction market.

Existing Home Market

The third segment to look for inventory is in the existing home market. Vickie Kelsall, Regional Manager for Century21, hit home the various issues facing the current and prospective homeowners. Many current homeowners are apprehensive to put their own homes on the market for fear of not being able to find another home they can afford or secure quickly enough. Buyers who purchased five years ago and secured a 3.5% interest rate may not want to abandon that for a higher rate. As home values have seen steep increases over the past few years, homeowners may opt to pull equity out of their homes to remodel them rather than sell the property.

Demand

Demand is extremely strong – anyone working in real estate or trying to buy or sell will not be surprised by this at all. Just about every listing that comes on the market gets multiple offers, often times 10% more than the listing price. This causes extreme frustration and uncertainty from buyers and agents. This is most prevalent in lower priced homes where most first-time homeowners are looking to buy.

Unless you avoid the internet and television all together, you have probably heard that unemployment rates are extremely low – the national average was just 4.0% in January 2019. This means that the volume of people with steady paychecks increases and floods the buyer pool, generating intense competition. While we’re all tired of reading about millennials, I would be remiss in not mentioning that they have been becoming homeowners at an increasing rate over the past three years.

Low interest rates are another major reason why people are trying to trade leases for mortgages. We’ve seen the Federal Reserve (Fed) raise interest rates a few times recently, but homebuying is still more affordable than we’ve seen in past decades. The Fed recently indicated they would be patient with future rate increases, but a few of our speakers weren’t very confident in this. The keynote speaker, Dr. Douglas Ducan, predicted an increase in June and another towards the back end of 2019.

Local to Wisconsin, I was surprised to learn that people from the Chicagoland area are moving into Wisconsin quite frequently. This adds to the number of people potentially purchasing homes. While it’s good to see this population growth, those people are not selling homes in our area which creates an imbalance in our markets.

Final Thoughts

The majority of our expert speakers and panelist agreed that 2019 would be very similar to 2018. The markets will be tough with very low supply and high demand. We also heard regular predictions that our next recession isn’t far away — as close as 2020. However, the experts didn’t think this recession would be nearly as bad as the “great” recession that we remember all too well.

While I didn’t walk away from this day with many concrete solutions,  I did learn that many are trying to solve the problem. Lobbyists are trying to remove some of the red tape that makes building less difficult. Builders are looking to develop on smaller lots with less roads and driveways in an attempt to reduce costs and take advantage of a lack of space. Real estate agents are trying to get more creative in helping their buyers to find properties and setting realistic expectations about what is available.

All in all, this was a fantastic event with great speakers. These experts have seen good times and bad. The consensus was that although we’re dealing with some short-term pain, the US still has the strongest economy in the world and we’ve learned to overcome some obstacles and avoid another major downturn in our markets.

By every measure of performance, 2018 was a great year for WHR Group. We consistently hit targets regarding financial performance, service levels, budgets, and cost management structures. We thrived in a world dominated by messy politics, global trade wars, and economic uncertainty.

The same can be said for many of our clients, however, there is one critical issue that continues to weigh heavily on future performance: sourcing and securing the right talent to drive business plans and achieve financial targets. Talent, or the lack thereof, is a major threat to growing businesses and achieving consistent financial success. This is a recurring theme that weighs heavily on the minds of organizations around the world.

Human resources departments and recruitment agencies work to find the best methods for attracting and retaining employees, and yet it still isn’t enough. According to Korn Ferry’s Global Talent Crunch Study, “A major commercial crisis is looming over organizations and economies throughout the world.” The study goes on to state that “by 2030, we can expect a talent deficit of 85.2 million workers,” which could result in “$8.5 trillion in unrealized revenue.”

According to “The Global Workforce Crisis” by The Boston Consulting Group, the following chart demonstrates the need for labor vs. the available supply in the coming decade:

Blue = Surplus; Gray = Borderline; Red = Shortage

Korn Ferry’s CEO Alan Guarino said “the right talent is the greatest competitive advantage there is for an organization – and that talent is getting scarcer every day.” Guarino also stated that “in the face of such acute talent shortages, workforce planning and a comprehensive understanding of the talent pipeline are critical.”

This is not a temporary blip or a short-term problem that will resolve itself overnight. This is a fundamental strategic issue that all major economies and companies will have to address. Case in point is the US unemployment rate. Since July of 2018, the monthly unemployment rate has consistently been below four percent (4%). Demographics in the workforce are shifting, making skilled workers increasingly difficult to find, especially in manufacturing, IT, and healthcare industries.

However, it’s not only these industries experiencing a talent shortage. According to the 2018 Talent Shortage Survey completed by Manpower Group, “more employers than ever are struggling to fill open jobs. Forty-five percent (45%) say they can’t find the skills they need, and for large organizations (250+ employees) it’s even higher, with sixty-seven percent (67%) reporting talent shortages in 2018.”

How is the issue solved?

After surveying current clients, we found that the following measures are currently being taken to address the issue of talent acquisition:

• Adding more recruiters
• Engaging with outside placement firms
• Providing training and educational opportunities
• Offering flexible working options
• Increasing salaries
• Improving the day-to-day working environment by offering enhanced amenities
• Replacing skilled workers with automation

However, these efforts are not all inclusive. There are significant costs in hiring a new employee when factoring in advertising, interviewing, screening, onboarding, and training. There is also the management time devoted to employees and the ramp-up time to full productivity. The Society for Human Resources Management (SHRM) has statistics showing hiring costs of six to nine months of an employee’s salary. The Center for American Progress also found that the turnover cost for highly paid or executive jobs is up to 213% of their salary.

The intangible, often overlooked, additional cost associated with hiring a replacement worker is the lost institutional knowledge of the company. Employees leave a knowledge gap of its product offering and the expertise they offer to clients, employees and service partners. You simply can’t transfer this “wisdom” and knowledge to a new worker.  Most companies don’t track all the costs associated with these data points, so the true cost to hire is likely much higher than what most organizations believe.

Relocation and Talent Management

In the late 1990’s and early 2000’s businesses started to recognize the need for talent management functions to insure they kept their brightest and best performers. Talent management became ingrained into many corporate structures and jobs were established to drive a new HR discipline. This was done not only to provide career roadmaps for employees, but more importantly, to insure company success was aligned with the right employees that consistently deliver financial success.

As an HR function, relocation has not been integrated with the same success or popularity as talent management. Across most organizations relocation is seen as a cost center and has not been met with the same embrace that defines talent management. This is shortsighted in that both functions are trying to ensure you have the right talent in the right seat and just as importantly – in the right physical location. 

Relocation provides a platform to the recruiting dilemma by investing in a known workforce of current employees. Providing a comprehensive relocation benefit package allows an employee to transition from one city to the next with minimal financial impact. That said, the history of the past 20 years has been to eliminate, reduce options and drive the costs of these policies down. Many corporate policies today do not reflect the true cost to relocate and consequently many people seek other employment opportunities if they are looking to enhance their careers. 

It is not simply about adding costs or throwing money at the situation. It’s about addressing relocation policies in the context of today’s worker, evaluating their family situation, and customizing policies that will address their specific needs. The new workforce is demanding global experiences which will ultimately provide a wholistic benefit to a global organization. If you are willing to leverage these experiences, your workforce will be more diverse and knowledgeable than your competitors. The question becomes are you willing to embrace relocation and re-think mobility as a strategic solution to the talent crisis.   

In the past, companies had the upper hand in the hiring process. Today, however, employees hold the power and organizations must find ways to keep up with the quickly changing times. Companies have to reinvent the talent acquisition wheel to locate potential employees in today’s changing world and workforce. For many, conducting surveys is one of the best ways to predict the obstacles on the road ahead; talent acquisition is no exception.

To remain competitive, companies will have to consider becoming more open-minded about candidates, pay more money to attract employees, or offer more benefits. Relocation package benefits in particular are creating a lot of buzz. A recent poll conducted by Robert Half found that 62% of workers surveyed would consider moving for a position. In a sperate poll, it was found that 34% of companies surveyed increased their relocation-package offerings; this is more than one-third of companies. Responses were collected from more than 2,800 U.S. workers, from ages 18 and up. The senior executive director of Robert Half, Paul McDonald, stated that “In today’s competitive hiring environment, many employers are finding it challenging to locate skilled professionals in their immediate area. As a result, organizations are open to considering candidates in other cities and offering attractive relocation packages to secure that talent.”

When asking respondents why they would consider relocation, most answers stem back to better pay and improved perks (44%). Other factors include family or personal reasons (17%), and the cost of living and career advancement (16% each). McDonald stated that “Besides receiving corporate incentives to move, there are a number of professional and personal reasons workers opt for a change of scenery, including higher salary, better perks, more affordable cost of living or advanced job title.” Demographically, it was found that professionals ages 18-34 (76%) are more likely to relocate, compared to those ages 35-54 (62%) and 55 and older (40%).

The employee-controlled job market isn’t dying down anytime soon. Researchers and surveyors predict this trend to continue in 2019. According to a study done by ManpowerGroup North America, U.S. employers plan to grow their workforce over 20% every quarter in 2019, increasing the number of open positions. Offering relocation gives employers an opportunity to get ahead of the hiring curve.

Moving during the warm and sunny peak season may be the most popular choice. However, there are many benefits to relocating during the non-peak months. As the busy season slows down, the demand for moving and relocation needs drops, making a direct impact on pricing and scheduling. Timelines are easier to create and follow, and suppliers are competitive with pricing by lowering their rates. This is extremely apparent in household goods shipping (HHG).

The Struggle for Drivers

For the past 15 years, the number of drivers in America has continuously decreased for multiple reasons. One example being that the average age of the American truck driver is 55 years old and that age continues to increase. The minimum age to hire a new truck driver is 21, making it challenging to replace retired drivers. Also, while 47% of all U.S. workers are female, only 6% of drivers are women. While efforts are being made to correct the shortage of drivers in industries across the board, not much has been done to correct the issue in the moving and relocation world.

Receiving More Attention from Movers

Locating qualified household good drivers remains a grapple in itself; adding the busy peak season to the mix creates another issue, making it next to impossible to implement a smooth relocation. If the transferring employee doesn’t schedule a pickup and delivery of household goods at least 6 weeks in advance, the chances of using the desired vendor and timeline are slim. This typically creates frustration for the transferring employee, due to a lack of a concrete schedule and delayed timeline.

While it’s still strongly suggested to coordinate early with your mover in every situation, there tends to be more flexibility during the non-peak season. Relocations during this time period permit the transferring employee to create a schedule and have their choice of vendor. Drivers and movers also have more time to dedicate to one move, paying more attention to how HHG items are packaged and transported. When this happens, the overall relocation process is smoother and more enjoyable for the relocating employee.

The Decrease in Fees and Rates

The increased demand for drivers throughout the entire shipping industry leads to increased moving fees. Oftentimes, cost plays a large part in the selection of van lines for household goods shipping. During peak-season, HHG movers are very busy and it is reflected in their fees. With such high demand, drivers and coordinators can charge at a much higher rate. To mitigate this increase, WHR developed MMP™, which allows van lines to bid for each move at or below a negotiated single-factor rate. Coupled with satisfaction and claims statistics, WHR chooses the best van line for the individual move.

As late September starts, rates and fees begin to drop, and moving companies can lower their rates by at least 30%. This is a time that van lines can be competitive in pricing to make sure they receive shipments. Not only can a transferring employee be more in charge of their schedule, but they have one less stressor to worry about!

While there are pros and cons to relocating in all seasons, one must remember that not every situation is the same. Household goods shipping can be a stressful process, and it is important for both the employer and the relocation management company (RMC) to be empathetic to their needs.

How Supply and Demand Influences Moving Costs

With roughly 70% of moves taking place between Memorial Day and Labor Day, relocation suppliers such as inspectors, appraisers, and household goods movers are in extremely high demand. By applying basic supply and demand principles, we know that this also means high cost and low supply.

As the busy season slows down, demand quickly drops. Between children returning to school and increased inclement weather, it is seemingly an undesirable time to move. With an abundance of suppliers available, individuals benefit from decreased fees and increased scheduling flexibility.

A Speedy Relocation

Due to the high demand of vendors in summer, expedited relocations are extremely difficult to conduct. Timelines are stretched in order to fit everything from inspections, appraisals, and household goods (the pack, load, delivery, and unpack). Oftentimes, appointments are primarily based on supplier availability instead of when is best for the relocating individual.

On the other hand, scheduling a relocation during the slower, winter months can make for a less stressful move. Due to low demand and high supply, relocating individuals enjoy flexible timelines and easier appointment setting.

Family Needs

Relocating with children can be stressful at any time of the year. While many families worry that relocating during the school year (non-peak season) may have a negative impact on their children, it’s also suggested that moving during the school year could be beneficial for some. At the beginning of the school year, returning students are excited to see their friends, and it can be easy for a new student to feel lost and left out. But if a family moves during the school year, the children are placed in school right away and are immediately part of the action. This can make it easier for kids to meet new friends at their new school. This also helps to eliminate any nerves that may have built up over the summer while waiting for school to start.

While there are pros and cons to relocating in all seasons, one must remember that not every situation is the same. A relocating employee should consider all factors and find the best for themselves and their family, and it is important to be empathetic to their needs.