COVID-19, Remote Work, and the Housing Market
An unanticipated effect of COVID-19’s impact on the United States is that it has forced society-at-large to rethink everyday life. Major metropolitans all but shut down, and many companies were forced to explore the viability of having a mass workforce work remotely. This paradigm shift has only become more noticeable, as the United States experiences a resurgence of cases. With businesses restructuring to accommodate remote work during this crisis, it’s not a far stretch of the imagination to picture a world where remote work becomes the norm. This begs the question: if remote work is the norm, is it fiscally responsible to live in areas with a high cost-of-living when it is no longer truly necessary?
According to the National Bureau of Economic Research (“NBER”), approximately 37% of all jobs can be performed remotely. Moreover, according to a recent Gallup poll, 49% of Americans would prefer to continue working remotely when their offices formally reopen (these numbers also raise questions about the future of commercial real estate). Many of these remote-viable jobs are in the tech industry. Companies like Facebook, Twitter, Square, and Nationwide are all but guaranteeing their employees’ ability to work remotely a majority of the time. Thus, one could expect to see a decrease in the populations of cities like San Francisco, San Jose, and Boston. On a larger scale, we might see a major exodus from major metropolitans, as one of the main reasons people live in admittedly suboptimal conditions is their proximity to their place of work.
We are seeing early signs that major cities are losing residents as a result of remote work; rental prices are dropping (which indicates a decreased renter-side demand, or an increased landlord-side demand; either variation suggests less people are renting, which means they must have gone somewhere else). The median cost of a one-bedroom apartment in San Francisco was $3,280 in July 2020, which is 11.8% lower than the median cost in July 2019. Similarly, Los Angeles rental prices are down 3.6% ($2,150), and 8% in San Jose ($2,300). In a nutshell, people are realizing that excessive cost of living is becoming unnecessary; they can move somewhere cheaper, make the same income, and put money away into savings (remote work may very well fix the Millennials’ financial crisis).
The next indicator to keep an eye on is whether housing prices drop as more and more people leave big cities. It is one thing for renters to up and move, but homeowners are unlikely to sell off their largest asset at the drop of a hat. While homeowners should keep an eye on these developments, remote work is unlikely to drastically change the real estate landscape; not all of the previously referenced 37% of jobs will transition to fully remote, which means moving far away from the office won’t be an option. However, the mere prospect of a major shift in housing demand may be enough for a buyer with a savvy agent to negotiate favorable terms and a favorable price on their dream home.
At the Chernov Team we understand that knowledge is power, and knowledge of market trends is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.