Home Prices Increased With Rise of Remote work

Remote work has freed workers to move across the country, increasing the demand for houses.

The growth in remote work has not only affected how Americans get their work done but also where they prefer to do it. Increased geographical freedom has sparked a migration of workers, and the housing market is becoming increasingly costly as a result. 

Remote work had evolved from a semi-temporary COVID-19 safety precaution to a standard and expectation. The increased popularity of remote working and the desire for bigger houses with more pleasant workspaces were key drivers behind this trend. Remote work is changing the landscape, and fewer employees need to live in or near large cities.

According to a working paper published by the National Bureau of Economic Research (NBER), demand for houses across the country may be responsible for more than half of the surge in real estate prices during the pandemic. The researchers found that after controlling for COVID migration, regions with the highest rates of remote work experienced much higher home price growth during the period.

This paper is one of the first studies to attempt to quantify how remote work has impacted real estate. The study analyzed remote work data from December 2019 to November 2021 and found that 42.8% of American employees were still working from home part or full time by the end of the period. The study also discovered some indications suggesting that a large portion of current remote work will become permanent.

The NBER working paper noted that US home prices increased by 23.8% — the highest rate on record – as remote work fueled both housing demand and house buyer migration. This increase in homebuyer migration ultimately led to an increase in home prices and rents. 

The study could represent a significant shift in the housing market and one that was not solely driven by low-interest rates and fiscal stimulus. It determined that remote work was responsible for around 15 percentage points of the 24% overall rise in home prices between December 2019 and November 2021. However, the boom in remote employment exacerbates an already difficult housing market, especially as housing inventory falls short of demand. The U.S. was short 3.8 million units by the end of 2020, according to Sam Khater, the chief economist at Freddie Mac, and this deficit of units had increased 50% from 2018.

Redfin found that as average home prices rise across the United States, a surplus of remote employees is moving to more affordable housing markets. According to the real estate firm, the proportion of home buyers who move from one area of the country to another has never been higher.

According to Redfin's data, 32.3% of its online home-buyers looked to relocate in January and February across the country. This is an increase from 31.5% in the first quarter of 2021 and up from 26% in 2019, prior to the pandemic. According to a recent survey, Miami and Phoenix are the most popular destinations for people looking to relocate to acquire a new house. Home prices have climbed 28% and 27.7% in these cities since 2021. 

The researchers discovered that areas with the most significant proportion of remote employment had significantly greater home price growth throughout the period after controlling for COVID migration. In these communities, they found that rent hikes had the same impact on home rentals and commercial rent decreases.

The pandemic has shattered people's preconceptions about the traditional work model. Employers are discovering that employees can function effectively without being confined to an office. As Remote Work and Productivity, researchers at Texas A&M University found that working remotely may significantly boost worker productivity and company resilience.

Remote work is encouraging employees to reconsider where they get their work done now that more organizations have made the switch to a fully remote or hybrid model. This implies searching for a property that better meets their requirements for many individuals.

However, whether they decide to relocate across the street or across the country, the rise in remote work is fueling home prices. As a result of the pandemic's effect on current housing needs, many pandemic homebuyers and renters sought to upgrade to larger, more expensive homes in order to continue working from home.

Policymakers at the Federal Reserve should pay close attention to the development of remote work since it will significantly impact house prices and overall inflation.