Remote Work Caused The Housing Boom

A new working paper from the National Bureau of Economic Research finds that the majority of the home price increase that happened during the pandemic was remote work driven…(NBER)

What explains record U.S. house price growth since late 2019? We show that the shift to remote work explains over one half of the 23.8 percent national house price increase over this period.

They argue that this change was a change to the very fundamentals of housing…

Our results suggests that house price growth over the pandemic reflected a change in fundamentals rather than a speculative bubble, and that fiscal and monetary stimulus were less important factors.

This is important. Everyone claiming the housing market is about to crash is looking at housing through the old lens. The authors, John A Mondragon and Johannes Wieland, argue that the housing market has changed fundamentally and that is why you can skyrocketing prices, and its not a sign that housing is a bubble. However, just because fundamentals change doesn’t mean they can’t change back…

We conclude that the shift to remote work induced by the pandemic caused a large increase in housing demand. This suggests a fundamentals-based explanation for the most rapid increase in house prices on record, and that the future of remote work may be critical for the path of housing demand and house prices going forward.

So basically if the local housing markets that saw rapid growth want to hold their current value they need to hope businesses don’t call everyone back to work. If so, we could see some lower prices in these hotter markets…