The Link Between Rising Interest Rates and Executive Mobility

Since the COVID-19 pandemic, interest rates have increased dramatically.

This has affected life across the board, but it has had an inordinate impact on some areas more than others.

Real estate is one sector that is among the hardest hit. Sky-high rates, at least compared to recent history, have impacted affordability in the housing market for everyone—including executives.

Many current leaders (i.e., those in the Baby Boomer, Gen X, and Gen Y demographics) have enjoyed historically low fixed-rate mortgages in the past, and there’s no doubt that the current situation is changing the status quo. 

Let’s investigate the chaotic housing market from an executive’s perspective and consider how the unfolding uptick in living costs is hampering mobility and influencing executive compensation.

The Grim Picture of the Current Housing Market

As of this writing, the APR (annual percentage rate) of a 30-year, fixed-rate mortgage with 20% down hovers around 7.5%. No doubt, many don’t need much of a reminder as they recall the endless series of recent rate hikes by the Fed.

In comparison, four years (and precisely one pandemic) ago, mortgage rates had an unexpected drop-off, dipping below the 4% point. Rates remained low during the pandemic, too. In fact, in 2021, they fell as low as 2.96%. Two short years later, they’ve more than doubled.

While current market conditions have finally led to an easing in the relentless upward momentum, there’s little hope rates will reverse course quickly. On the contrary, many experts predict that there will be a very slow decline over the next few years. The Mortgage Bankers Association, for example, offers a less-than-hopeful forecast of 6.1% by the end of 2024 and 5.5% a year later.

The point? High mortgage rates are here to stay, at least for a while, and they’re causing chaos even at the upper tiers of corporate America, both in the form of a lack of mobility and a reluctance to relocate.

A Reluctance in Leaders to Move

High interest rates put pressure on everyone. As some companies continue to struggle in the post-pandemic economy, many look for fresh leadership to breathe new life into their organizations. The problem? Many leaders don’t want to relocate when they’re facing a huge increase in living expenses simply because they need to move to a new residence.

Many leaders don’t want to relocate when they’re facing a huge increase in living expenses simply because they need to move to a new residence.

To put this into context, consider an executive making payments on a $750,000 mortgage. The monthly payment at 3% would come out to somewhere slightly north of the $3,000 mark. If they move and lock in at a 7.5% rate, that same mortgage payment jumps by well over $2,000 to around $5,250. That’s a $2,000 per month increase to have the same property value.

Two factors impact a leader’s willingness or unwillingness to move in this kind of economic climate. The first is the rise in remote and hybrid work. This is a huge incentive for executives across the C-suite to stay put in their current residence and wait things out.

For those who do need to move, the obvious alternative is an increase in pay, and, hey presto! Right on queue, we’ve had a noticeable increase in C-suite compensation in recent years.

Executive intelligence company Equilar reported a 7.7% increase in executive pay from 2021 to 2022 alone. The one exception in that case was that cash bonuses dropped by a few percentage points—although only after a historic rise the year before. The United Auto Workers (UAW) union president also recently cited a 40% increase in executive pay in four years.

These two examples are indicative of rising executive pay across the board. While it doesn’t explain everything, there’s no doubt that housing is playing a part in the negotiations. As housing costs for leaders jump by leaps and bounds, those who have to relocate are expecting pay raises to compensate for the added expenses and incentivize the move.

Planning Effective Executive Recruitment With Mobility in Mind

The fluid, confusing, and unpredictable state of the current economy is wreaking havoc on executive recruitment. In many ways, getting a leader to relocate is harder than ever.

This is why working with an executive recruitment partner can be invaluable. Our team at Stanton Chase can bring the tools, knowledge, and experience required to find the right talent and put together attractive compensation packages for them. We have our finger on the pulse of current executive challenges, such as the housing market, and can use that information to help place new candidates, both in remote and in-person settings.

If you’re trying to fill a gap in your C-suite, the current housing market has to be a factor. Whether it’s through increased compensation or a willingness to work remotely, companies must be willing to adapt if they want to bring in top talent to effectively safeguard their organizations against one of the most turbulent times in recent history.

About the Author

Ken Nimitz is the Global Vice Chair of Finance for Stanton Chase and a Managing Partner at Stanton Chase Nashville and Atlanta. He is an accomplished retained executive search and leadership advisory professional, specializing in the industrial, manufacturing, and private equity sectors. Ken’s technical background, coupled with his operational and leadership proficiencies, gives him a unique perspective for selecting high-performing C-level executives who are well-matched to an organization’s leadership needs.