The Fiscal Cliff and Relocation

Now that the election is over, many of us have begun to turn our attention to the looming crisis known as the fiscal cliff.   The fiscal cliff is the popular term used to describe the Budget Control Act of 2011.  Unless Congress acts before January, when the Budget Control Act takes effect, many Bush-era tax cuts will expire, taking approximately 500 billion from consumers/businesses in 2013.  Automatic budget cuts, also part of the political deal to avoid default on US debt last year, would also go into effect immediately to the tune of 1 trillion dollars.

The non partisan Congressional Budget Office estimates that the U.S. economy would go into recession, contracting by 2.9 percent just in the first six months of 2013. The CBO also estimates that the austerity measures of the Budget Control Act could cause the economy to lose 2 million jobs, and unemployment to shoot up to over 9 percent next year.  The graphic below (provided by The Detroit News) gives a clear illustration of exactly what the fiscal cliff is and who might be impacted.

click to enlarge

According to the latest workforce mobility study conducted by Worldwide ERC the top two reasons for employee reluctance to relocate are slowed real estate appreciation/depressed housing market at the old location, (reported by 91 percent of respondents) and transferee’s old location home is in a negative equity situation (reported by 86 percent of member organizations). It is apparent that an unsettled real estate market plays a significant role in impacting how employees perceive moving.

As unemployment rises the size of the potential buyer pool shrinks and uncertainty increases. When people feel uncertain, they tend to wait on major decisions such as a home purchase.  Job growth is the greatest single key to a sustained economic recovery in the short term. With it comes shifts in all sectors of the economy, especially real estate. Experts agree that unemployment is a major drag on home sales hurting investment and household discretionary spending.

The good news is earlier this year organizations were projecting  an overall increase in transfer volume of 6 percent over 2011.  Much of this increase can be attributed to an improving economy and housing market. Low housing inventory and record low interest rates have created strong buyer demand which will most certainly suffer as the Budget Control Act begins to suffocate a market in the early stages of recovery.

As the fiscal cliff threatens to derail our economic recovery and restrain our mobile workforce we say pay attention and stay tuned! The next couple of months could prove to be very interesting!

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