Have you ever wondered what caused the dramatic rise in housing prices since the pandemic? Well, two financial experts claim they’ve found the answer!
In a paper recently published by the National Bureau of Economic Research (NBER), authors John A. Mondragon and Johannes Weiland explain that the surge in housing prices was mainly due to telecommuting.
Namely, the initial decline in mortgage rates and the fiscal stimulus were less influential on housing costs than remote working. But why is that?
According to the paper, one of the reasons was the increased demand for properties that were away from densely populated areas.
Meanwhile, numerous other factors, such as supply chain issues and the pandemic-fueled lumber shortage, substantially raised building costs, thus influencing the market further.
Economists calculated that a 1% rise in remote workers equals a 0.93% increase in housing prices around metropolitan areas. As a result, between December 2019 and November 2021, housing prices increased by a whopping 23.8%.
Not only that, but renting prices also increased due to remote work. Particularly in neighborhoods where white-collar workers were most likely to install their home office desks.
So, the question remains: what happens when everyone returns to their old workspaces? And why are housing costs still on the rise?
Experts note that prices will flatten out or even drop as soon as we see a decrease in remote workers. Nevertheless, the likelihood of that happening is extremely slim and it’s more likely that the market will slow down instead of returning to normal.