Remote Workers Will Bring the Housing Market Back Full Circle - Here’s How

It is a truth universally acknowledged that remote workers were the primary driver of rapidly rising home prices over the past three years and, combined with the rise in interest rates, the declining mortgage market. However, the cause of the current market turmoil may ultimately prove to be the cure. 

2020 saw a dramatic increase in work-from-home, triggered by stay-at-home orders issued in response to the COVID-19 pandemic. With so many workers no longer tied to their job’s physical location and interest rates at an all-time low, many saw the opportunity to move out of high-cost, densely populated urban areas into more suburban and rural areas with a lower cost of living. Such moves spiked 20% during the first year of the pandemic, and the increase in demand drove home prices up by more than 20% nationally between 2020 and 2022. Research from the Federal Reserve Bank of San Francisco estimates the increase in remote work explained more than half of that increase. 

The dramatic increase in interest rates since March 2022 certainly cooled the red-hot mortgage market, though the historic volumes lenders experienced in 2020 and 2021 were driven primarily by refinances and not purchase transactions. In fact, most moves driven by COVID were completed mainly in 2020, with 6 million fewer Americans moving in 2021. 

While increased demand from newly minted remote employees accounts for a portion of the rise in home prices, it doesn’t tell the whole story. The other component in this equation is the lack of supply. As a result of the subprime mortgage meltdown and global financial crisis, homebuilders pulled back dramatically on new housing starts, resulting in a more than 56% decline throughout the Great Recession and persistent stagnation in the following years. Even with recent increases in new single-family construction starts, there is still a 3.8 million shortage in housing nationwide, which experts estimate could take nearly a decade to erase. 

However, the outlook is not all gloom and doom, as remote employees may hold the key to reviving the mortgage market. Today, 26% of all U.S. employees continue to work remotely, and experts predict that the number of Americans working remotely will increase by 417% by 2025 from pre-pandemic levels. Research from the Economic Innovation Group indicates that certain areas of the country – namely the Sun Belt region and suburban areas surrounding larger coastal cities – are better equipped to feed remote workers’ demand for new housing without driving up home prices drastically due to “generally…cheaper land to build on, less red tape for developers, and a strong record of new housing construction.” As remote workers continue to leave high-cost urban areas like San Francisco and New York, home prices in these areas are also expected to decline. 

Thus, in a full circle moment, what many have seen as a primary driver of the current mortgage downturn may be what ultimately triggers a market rebound.