The ‘Great Reshuffling’ played a big part in pushing home prices higher
By Anna Bahney, CNN Business
The pandemic changed the way people lived and, for many, where they lived. Working from home was a significant driver of this “Great Reshuffling” and accounted for more than half of the steep increases in home prices seen during the pandemic, new research has found.
Remote work allowed some people to move to places farther away from their office and prompted others to buy larger homes to accommodate their new lifestyles. The demand for more house and the ability to move to warmer climates played a sizable role in pushing home prices higher, according to a new National Bureau of Economic Research working paper by researchers from the Federal Reserve Bank of San Francisco and the University of California, San Diego.
Home prices grew by 23.8% during the pandemic, according to the researchers’ population-weighted analysis of Zillow’s home price index between December 2019 and November 2021. And the study found that remote work accounted for 15.1% of that growth.
The findings suggest there was more than just speculation behind the turbo-charged growth in home prices during the pandemic, said Johannes Wieland, an associate professor of economics at the University of California, San Diego, and co-author of the study. He added that the evolution of remote work is likely to have a large impact on the future path of home prices and inflation.
“We were pretty shocked remote work had this impact, once we saw the estimates,” Wieland said. “We thought about how people moving to different locations would be important. And it is. But it is the people who are remaining in a metro area — the people who need more space at home if they work at home — that is really pushing up prices. That is the majority of the story.”
The findings support what economists at Zillow have been seeing throughout the pandemic.
“We’ve seen what we called the ‘Great Reshuffling’ that has contributed to the demand for housing nationwide,” said Chris Glynn, senior managing economist at Zillow. “It has accelerated trends that existed before the pandemic. Migration to places like Austin [Texas] and Raleigh [North Carolina] has been happening for a while, but the pandemic accelerated it because of the un-tethering between an office and home that has allowed people to make choices about where they want to live.”
What makes a hot remote work spot
The Sun Belt attracted remote workers looking for a warm weather lifestyle even before the pandemic. But the researchers found that the trend gained further momentum during the pandemic, pushing up home prices in those areas at a much faster rate than before the pandemic.
By the end of the fourth quarter of 2021, the median single-family, existing-home price in Austin had grown by 26% from the year before, according to the National Association of Realtors. Prices in Phoenix were also up by 26% and in Boise, Idaho, by 24.3%.
The researchers found that cities that already had a large share of remote workers before the pandemic tended to attract even more after the pandemic shutdowns pushed a whole wave of people to work remotely.
“Where more people are working remotely, that’s where the home prices grow,” said Wieland, who noted that cities like Austin, Boise, Phoenix and San Diego saw some of the biggest home prices increases in the country as a result.
These remote-work-friendly cities share three main features, he said. The first is a predominant industry that allows for remote work. Tech jobs, for example, are easily done remotely because they mostly involve work on a computer, he noted.
The second aspect is a lower population density, where there is more space and more affordable housing than in the biggest cities in the country.
“It is hard to work at home in New York City, for example,” he said, explaining the cost of living there means that having extra space for an office comes at a premium. “Lower-density areas are more attractive for remote work.”
The third feature is a warmer climate or appealing lifestyle. “There is more remote work where the weather is nice,” he said. “When you’re not tied to a location because of your job, you can choose where you want to be. Many of these places…are attractive to people who can move to a place for lifestyle and not for work.”
That is why many of the cities in the Sun Belt saw such huge increases in home prices during the pandemic, he explained.
A fast impact on home prices
The pandemic spurred us to change the way we work very quickly, said Wieland.
“There hasn’t been a peacetime period where we have changed the way we do work in such a quick fashion,” he said. “Suddenly, we are moving further away from where our work is located. We don’t need the office space. We now need this home space for work.”
In a perfect world, you’d want to see the economy adapt to this change in preferences and opportunities, he said. “But it is hard to do with housing in a year or two, especially at a time when supply is not very high to begin with,” he said. “That is one of the reasons why home prices are going up at such a rapid rate.”
In their research, Wieland and his co-author John A. Mondragon, an economic research adviser at the Federal Reserve Bank of San Francisco, looked at a housing market impacted by many variables, including the low supply of homes for sale, a demographic bulge of Millennials reaching typical home buying age and the Fed’s slashing of interest rates during the pandemic, which resulted in ultra-low mortgage rates for more than a year.
The researchers measured the amount home prices in an area went up as it related to the amount of remote workers living in the area.
NBER working papers are circulated for discussion and comment purposes, but they have not been peer-reviewed or reviewed by the NBER Board of Directors that accompanies official NBER publications.
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