There are many who insist that real estate will follow its historical trend, and I like to say ‘it’s different now’ just to irritate them.
What are the things that are different?
Every buyer has had to qualify for their mortgage and use a sizable down payment, the vast majority have been buying their forever home (even if they didn’t know it at the time), and homeowners at the coast will likely be paying six figures in capital-gains taxes if they sell – which means that they need to leave San Diego to really make it worth moving. As a result, the number of people who are willing to sell has plummeted, which has kept the pressure on pricing.
The demand is different too. Back in the old days, it used to be loosely tied to incomes, but that flew out the window decades ago around here. The influx of affluent people has helped, but there is also a big difference that these researchers have explored – working from home:
It’s no secret that Americans’ newfound remote work lifestyles drove demand for larger homes with more comfortable workspaces.
What’s new: That demand may be responsible for more than half of the surge in real estate prices during the pandemic, according to a working paper published by the National Bureau of Economic Research.
- It’s one of the first papers that aims to quantify how remote work reshaped the housing market.
Why it matters: If the research holds up, it signals a fundamental shift in the housing market — that it wasn’t just low-interest rates and fiscal stimulus that drove up housing prices.
By the numbers: It found that remote work led to about 15 percentage points of the 24% average increase in house prices between December 2019 and November 2021.
Details: The paper’s authors are John A. Mondragon, an economist at the Federal Reserve Bank of San Francisco, and Johannes Wieland, of the University of California, San Diego’s economics department.
- 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.
- They also observed a similar effect on residential rents — along with declines in commercial rents — in these areas.
What they’re saying: This implies a shift in demand, as many pandemic homebuyers and renters sought to upgrade to larger, and more expensive homes to support their telework lifestyles, said Mondragon.
The bottom line: Policymakers like those at the Fed would be wise to pay close attention to the evolution of remote work because it will help determine the future of home prices — and of overall inflation, the economists wrote.