HOLIDAY

If Work From Home Fades, the Housing Market Slump Will Be Felt Unevenly

The historic rise of work from home and its outsized influence and impact on housing markets in outlying suburbs, smaller towns and rural areas

By Patrick Duffy

As mortgage rates rise to their highest levels since 2006 and overall home affordability drops to the lowest level since the Great Recession, it’s certainly reasonable to wonder which geographic areas might be most impacted by home price corrections.

In 2022, however, there’s also a new factor to consider: the historic rise of remote work or work from home (WFH) and its outsized influence on housing markets in outlying suburbs, smaller towns and rural areas far away from large, urban areas along the coasts. If WFH becomes a permanent part of the American labor force, then these areas should continue to flourish once affordability rebounds, most likely through a combination of lower housing costs and mortgage rates. But if the battle for the in-person office is won by a majority of more traditional employers demanding to see smiling faces in person, then housing prices in these pandemic-related hot spots may fall even further.

So far the news on who will win this battle is mixed. According to a global survey by the National Bureau of Economic Research (NBER), whereas employees would like to work remotely an average of 1.7 days per week, employers want to allow just 0.7 days, or a fairly significant disconnect of one full day. If employers are requiring workers to be in the office four out of every five week days, suddenly that residential investment outside of major employment centers doesn’t make as much sense.

In an Economic Letter, a Federal Reserve Bank of San Francisco analysis concludes that over 60 percent of the rise in national housing values between November 2019 and November 2021 could be attributed to the rise of remote work, representing 15 percentage points of the overall 24 percentage point increase. Moreover, these rapid price increases were not due to speculative bubbles but rather changing fundamentals, suggesting that just how widespread and permanent remote work becomes will have a lasting impact.

Once employees have tasted the flexibility which remote work brings (and which I’ve been personally practicing since 2000), it can be hard to let it go. In its third American Opportunity Survey, global consulting giant McKinsey & Company found that when offered at least some remote work, 87 percent of workers said yes and spent an average of three days per week out of the office. Somewhat surprisingly, the McKinsey survey also found that the rise of remote work during the pandemic was not focused on white collar jobs, but rather all kinds of jobs in every part of the country and sector.

Notably, another 12 percent of workers whose employers officially offer only occasional or part-time remote work options still reported doing so five days per week. Consequently, as long as the labor market is tight, this tension between employers and workers will likely continue, but if layoffs begin to increase, more traditional employers may look first to those remote workers they rarely see. Furthermore, remote work is not for everyone, with 41 percent of employed respondents not having the opportunity to do so. In addition, for younger workers looking to network and make important connections which could boost their career prospects, remote work may dramatically slow down that process.

If remote work is here to stay in significant numbers, the impacts will be felt not just in non-urban areas which have benefitted from the exodus, but in large, urban areas as well. Dense, urban centers which are designed to support large numbers of commuters from the suburbs with a variety of jobs and services will need to adjust what makes them special. As cited in the NBER survey, the share of WFH jobs has jumped 20 to 30 percent above pre-pandemic levels, and has stabilized at these higher levels. Notably, as of June 2022, remote work accounts for 38 percent of full time, paid workdays in the ten most populous U.S. metropolitan areas versus 30 percent in the next forty largest areas and 27 percent in smaller cities and towns.

When the country eventually emerges from the current period of high inflation, rising mortgage rates and increasingly unaffordable home prices, the enormous shift from office work to anywhere else with a decent Internet connection is very likely to stay. How employers adjust to this important benefit remains to be seen.  

Patrick Duffy is a Principal with MetroIntelligence and contributes to BuilderBytes. He can be reached at pduffy@metrointel.com or at 310-666-8288.

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