Remote work is a driving force behind surging home prices during the pandemic, according to a study from the Federal Reserve Bank of San Francisco released Monday.
The research found that increased demand for working from home accounted for 60 percent of persistent price hikes between November 2019 and November 2021. Over that period, national house prices soared 24 percent to record levels.
“Our results suggest that rising house prices over the pandemic reflected a change in fundamentals rather than a speculative bubble,” the authors wrote. “This implies that the evolution of remote work may be an important determinant of future housing costs and inflation.”
Roughly one-third of U.S. workers were working remotely as of last month, down from the peak of around 60 percent at the early stages of the pandemic but up from around 5 percent before the pandemic, according to the study.
Economists found that cities considered more desirable for remote work saw the biggest increase in home prices as the limited supply of homes couldn’t keep up with an influx in demand. They also found that remote work had an “identical” effect on rents, which remain at record highs nationally.
“Together, this evidence suggests that remote work caused a relative increase in the demand for all types of housing,” the authors wrote.
Rising mortgage rates stemming from the Federal Reserve’s interest rate hikes have further reduced affordability and slowed sales. Existing home sales dipped for the seventh straight month in August, but prices are still up 7.7 percent from the same period last year, according to the National Association of Realtors.
Federal Reserve Chairman Jerome Powell told reporters Wednesday that the housing market may need a “correction” to make homeownership attainable for many Americans.
“For the longer term, what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level, at a reasonable pace, and people can afford houses again,” he said.