It wasn’t just strained supply or record-low mortgage rates. The rapid shift to remote work powered most of the home price rally throughout the pandemic, according to a new study published by the Federal Reserve Bank of San Francisco.
The US housing sector was a rare outlier in the early stages of the pandemic. While the country slid into lockdowns and the economy broadly slowed, demand for homes skyrocketed. Prices surged at record-breaking speed, bidding wars surrounded nearly every sale, and homes frequently sold within days of hitting the market — and well over asking price.
The intense buyer competition helped push housing affordability to a 3-decade low. And as economic volatility continues to seep into the US real estate market, prospective buyers are becoming increasingly priced out of homeownership.
The blame can largely be attributed to an imbalance between supply and demand, which worsened as the shift to remote and hybrid work became a permanent fixture of US business models. A study published Monday by researchers Augustus Kmetz, John Mondragon, and Johannes Wieland concludes the growth of remote work didn’t just spur homebuying, but boosted home prices through much of the pandemic.
By tracking migration and its effect on home demand, the team found that home prices climbed by about 0.9 percentage points for every percentage point that remote work increased. Remote work increased to 16 percentage points from November 2019 to November 2021, according to the study. That implies that remote work alone lifted home prices 15% over that period, and accounted for more than 60% of the overall increase in home values.
“This suggests that the fundamentals of housing demand have changed, such that the persistence of remote work is likely to affect the future path of real estate prices and inflation,” the team wrote.
Indeed, remote work is reshaping the US real estate market. As more companies transition to this work model, a study from freelancing platform Upwork, shows that 18.9 million Americans now plan on moving to a new home — a trend that is worsening the nation’s imbalance of housing inventory and buyer demand.
“From working habits to commuting patterns, there is an undercurrent of change,” Upwork researchers wrote. “This is especially true when we look at the geographical implications of remote work. For the first time, remote work allowed many people across the country to see a life in which the location of their job and where they live did not have to be one and the same.”
As Americans migrate to new housing markets, transplants are competing with locals for a limited amount of housing stock. With new residential construction on the decline and fewer homeowners listing their properties for sale, it’s helped to keep home prices high throughout the US.
“A place’s popularity has a big impact on how much its local prices go up,” Taylor Marr, the deputy chief economist at Redfin, said in a housing report, adding that in pandemic home buying hotspots the increased traffic pushes up prices for everything from housing to food to fuel and “ultimately contributes to overall inflation.”
To be sure, the price rally has already started to unwind. The Fed’s jumbo sized rate hikes have more than doubled mortgage rates from where they stood at the end of last year. That’s crushed buyer demand and dramatically slowed activity in the housing market. Prices fell through June in six of the country’s 20 largest cities, and price growth is generally slowing throughout the market.
But with hybrid work continuing to drive homebuyer migration, it will take quite a while for home prices to return back to earth.
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