The remote work boom is partly to blame for the pandemic-era explosion in housing prices, according to a new study.
Remote work accounted for about a bit more than half of the 23.8% growth nationwide of housing prices since late 2019 — at about 15.1%, according to a working paper from the National Bureau of Economic Research authored by John Mondragon, a research adviser from the Federal Reserve Bank of San Francisco, and Johannes Wieland, associate professor from the Economics Department at the University of California San Diego.
The Covid-19 pandemic reshaped the way people work, with 42.8% of employees still working from home part or full-time in November 2021, according to the paper. While the trend has heavily affected the labor market, office strategy and the employer-employee dynamic, the research shows it’s also impacting housing.
The NBER study took into account how remote work affected local areas, including inflation as people moved to areas made more feasible by remote work — a trend that is shaping migration patterns, the homebuilding sector and how communities recruit new residents.
“Our results suggest that house price growth over the pandemic reflected a change in fundamentals rather than a speculative bubble, and that fiscal and monetary stimulus were less important factors,” the authors wrote. “This implies that policy makers need to pay close attention to the evolution of remote work as an important determinant of future house price growth and inflation.”
The researchers found remote work also had the same net effect on rental rate growth, and also a more limited, but negative affect on commercial rents. But the researchers also expect remote work to continue to impact the housing market and stressed that it did not look like a bubble in housing prices.
“We conclude that the shift to remote work induced by the pandemic caused a large increase in housing demand. This suggests a fundamentals-based explanation for the most rapid increase in house prices on record, and that the future of remote work may be critical for the path of housing demand and house prices going forward,” they wrote in the study.
The contribution of remote work comes as the housing market, despite showing some signs of cooling, continues to stay strong in 2022. About 60% of sellers report getting at least two offers on their home, according to real estate company Zillow, and nearly half of all homes sold in the United States in April 2022 went for over asking price, up from 37% a year ago.
There are also 23% fewer homes on the market than there were a year ago, and 40% of buyers waived a contingency, such as financing or inspection, on at least one of their offers.
However, the number of overall housing transactions has dropped 13.6% over the same time last year, according to the National Association of Realtors, even as pending home sales are up slightly.
“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” said NAR Chief Economist Lawrence Yun. “Contract signings are down sizably from a year ago because of much higher mortgage rates.”
As The National Observer Real Estate Editor Ashley Fahey recently reported, U.S. mortgage lending activity drops at fastest rate in 8 years — including a decline in purchase-loan activity that surprised some experts.
Rising interest rates has meant that a median-priced family home with a 10% down payment will cost an extra $800 a month compared to the beginning of the year.
“Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy,” Yun said. “The better way to balance the market is through increased supply, which also helps the broader economy.”
And overall rising costs, including inflation and gas, has meant that many companies are seeing their return-to-the-office plans stall, with occupancy rates flattening out instead of continuing to grow. Meanwhile, investors and institutional buyers may be throttling back their single-family home buying spree in recent months, but their share of the overall market continues to grow as sales decline.
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