Are High Interest Rates Keeping Top Talent on the Sidelines

And in no growth jobs?

We all know the housing market is tough. Home prices have shot up 42% since 2019 and interest rates have jumped from a low of 2.75% in 2020 to relatively high rates of 7.0% as of June 2024. Real estate inventories, in the single-family sector, are hovering around 800,000 units, down from an average of 1.4 million just a few years ago. Despite the high interest rates, low inventory is driving homes for sale to sticker shockingly high prices. All the homeowners that refinance in the twos and threes in 2020-21 are doing the math. Many, like me, are ready to downsize after their children have grown up but are staying put. It is far more cost effective to stay in existing homes, extra bedrooms and yard maintenance factored in, than to move to a smaller condo or townhouse. When considering increased purchase price, higher interest rates and dreaded HOA fees (for more on that see this recent article, Why We Can’t Have Nice Things, I posted on HOA's,) my monthly housing expenses would more than double if I opted to downsize.

Those who get math are simply staying put. That is keeping young couples looking to expand their families out of neighborhoods like mine. My suburban neighborhood, with slightly less bat crap crazy progressive policies, is more desirable than high tax, low service - DEI delivering schools in St. Paul mere city blocks away from my front door. This highly touted "Biden Economy" is keeping once downsizing retirement nearing people, that once fed the young couple starter home fantasies, in those homes. And that is having more than a ripple effect on the housing market. It is causing wave after wave of pricing volatility and lending stress.

This is obviously keeping aging boomers and now Gen X'ers in their current homes. Median home values are $420,800. That is up 53% in just five years from the median home value of $275,000 in 2019. Interest rates have also doubled to 7% in that same period. Let’s do a little comparison on 30-year mortgages:

As you can see from the Loan Amortization Schedules, just the Principal and Interest (P&I) on the average change in the housing environment jumps from $1,235 to $2,800 per month. That relates to an annual increase of $18,780 in just P&I payments. Factor in local property taxes and rising property insurance rates, and it simply makes no sense for aging people to leave their existing homes. But what if you are in the market for a new job in a different geographical area?

Let's say you are a mid-level executive looking at job prospects beyond your backyard. Maybe our fictitious candidate is looking for a change in latitude to escape cold winters. Or maybe our seeker is simply willing to move to states where the business sector is thriving like Tennessee, Texas or Florida. Statistically, that person would be moving from a 400K home at 3.5% to an 800K replacement at 7%. The annual mortgage payments would go from $21,554 to $63,870. That is a nearly 200% increase on mortgage expenses. Unless one is moving to one of the handful of income tax free states the expected income tax rate of 40% means that a new job offer that includes a relocation would have to be at least $70,000 higher than their current compensation to break even on the housing cost inflation. If I were advising someone considering this scenario, I would tell them not to make the move unless the new job offered 100K more than their current position. For most individuals, all but top executives, that is an unlikely scenario.

I contend that high interest rates and inflated housing values are not just keeping first-time homeowners out of the housing market, it is keeping employment talent on the sidelines as well. Pare that with the "talent hording" going on at many organizations, and it makes for a difficult recruiting environment.  And, that is bad for business, bad for our economy and bad for human capital. "But why?" you may say, "that sounds like great job security and isn't that a good thing?" The former Soviet Union had excellent job security and how did that help their economy? Getting employment within the government sectors, unless one lives in Argentina, also carries high job security as well. Yet are governments known for innovation? Do high job security government organizations focus on improving efficiencies? They do champion growth, but that is just for carving out a bigger slice of the power pie, not for any intrinsic good or value. Bottom line is, the more "secure" an individual’s job is, the less free they are. Business leaders looking to grow should shun this trend.

Healthy economies need employment migration to grow, and good business needs it as well. Every business should be continuously evaluating their workforce, identifying the top 10% for retention and the bottom 10% for elimination and replacement with more top ten percenters from competitors with poor retention tactics. Top performers drive bottom lines and demand higher wages, and both are good for business. High interest rates and job hoarding keep top talent on the sidelines and that hurts business growth. Moreover, it is bad for individual growth as, like the former Soviet Union and government work, it slaps chains of complacency upon workers stuck in uninspiring roles within stagnant organization.

Not everyone sees this from my point of view. The "crypt keepers" of modern HR departments like a docile and unmotivated to move workforce. The puppet masters of the World Economic Forum (WEF) love this talent migration stagnation as well as it definingly favors DEI inspired mega corporations at the expense of innovative start-ups and small businesses. To those WEF evil master minds, cornering the market on human capital is as desirable as their public-private partnerships that guarantees uncompetitive market share advantages. Keeping workers “in their place” and out of the market will eventually draw down wages. It also lowers employee acquisition and retention costs.

As a business leader, I don’t need to spend a lot of time noodling what is the right course of action to grow my business. I merely need to observe what the “experts within government and at the WEF say they want and do the opposite. As my old college professor used to say, “Mr. Nelson, you know you are right if you have the right enemies.” When politicians and top business leaders seem to be totally cool with the current state of job complacency and minimal region jumping for employment opportunities, I simply need to zig where they zag. That also means that growing businesses will need to get creative with working situations and comp packages to attract the talent they need to expand in the post pandemic – WEF envisioned hellscape being crafted by the very world leaders running the show now. Know that they absolutely abhor workers and only wish to control them, much the same way as Lenin and Stalin historically did, and most certainly, as Klaus Schwab’s ESG inspired movement does now.