Plenty of blame has been levied at institutional investors for driving up home prices over the past couple of years. But a new study from the Federal Reserve Bank of San Francisco shows that the proliferation of remote work may be more at fault than anything else for the surge in home values during the pandemic era.
“Nearly a third of employees still worked from home part time or full time as of August 2022. This has significantly increased housing demand and is a key factor explaining why U.S. house prices grew 24% between November 2019 and November 2021,” write the study’s authors, Augustus Kmetz and John Mondragon of the San Francisco Fed, and Johannes Wieland, an associate professor at the University of California, San Diego.
Remote workers “were able to relocate to cities with cheaper housing,” the study says, and as a result, more than 60% of the increase in home prices nationwide can be attributed to the growth in remote work. In short, the search for cheaper housing conversely led to an overall increase in home prices as workers left relatively expensive areas for less-expensive ones.
This most recent Fed study adds more credence to the idea that remote work was perhaps the primary cause of increasing home values. An NBER working paper, published in May of this year, likewise found that relocating remote workers were fueling home prices: The shift to remote work “explains over one-half of the 23.8% national house price increase” between late 2019 and May 2022, the paper’s authors write. “Across U.S. metropolitan areas, we estimate that an additional percentage point of remote work causes a 0.93% increase in house prices.”
Of course, homes aren’t the only thing that have seen dramatic price increases recently. With inflation at 40-year highs, the Fed has levied some big interest rate increases in an attempt to stifle demand, and thus, lower prices. While experts initially believed that lower rates wouldn’t necessarily lead to lower home prices, few likely expected mortgage rates to climb so far, so fast. The average rate for a 30-year fixed mortgage is currently hovering at around 7%, more than double the rate from a year ago.
This has resulted in the housing market cooling at a record pace. The latest data from the S&P CoreLogic Case-Shiller Index shows that home price growth decelerated at the fastest rate in history during July. Prices were up 15.8% year-over-year compared to July 2021, and they were up 18.1% in June. That marks a 2.3% decline month-over-month—a notable deceleration.
So, housing prices are still high, but there are clear signals that that growth is slowing down, and it could slow even further if the Fed sticks to its plans for further significant rate hikes. Remote work is still going strong, as the Fed’s study says that nearly one-third of American workers are working remotely at least part time. But as of mid-September, the national average office occupancy was 54.5% of pre-pandemic levels and creeping upward, according to The Washington Post (citing data from security company Kastle Systems). A return to on-site work may, in time, help further slow home price growth, too.
