Remote work will change what and where we invest in

Remote work will change what and where we invest in
by Brad Cartier, posted in Newsletter

The ongoing pandemic has fundamentally shifted various aspects of our lives, one of which is how and where we work. Remote work was forced upon most people, but many are finding they enjoy it, and employers are jumping on the WFH bandwagon long-term.

Twitter, for instance, recently announced that employees can work from home indefinitely should they choose to do so. There’s no doubt that we are amidst a fundamental demographic change, and this will have a major impact on real estate.

Last week, Redfin reported the results of a survey that point to a new investing landscape as more people choose to work from home and live outside of major urban centers. They found that 1 in 4 of newly remote workers expect to continue working from home following the pandemic. Further, 50% of those living in larger cities will consider moving if remote work becomes more permanent.

Remote work likely to continue following pandemic — Redfin

Source: Redfin

A similar survey was also conducted last week by Zillow, which sees similar findings. This research found that 75% of Americans currently working from home due to the pandemic say they want to continue. 66% also say that if they were granted remote opportunities they would consider moving as well.

The New York Times (subscription required) applied this thinking to Manhatten in a piece titled Manhattan Faces a Reckoning if Working From Home Becomes the Norm. “Even after the crisis eases, companies may let workers stay home. That would affect an entire ecosystem, from transit to restaurants to shops. Not to mention the tax base.”

As I’ve written elsewhere, this work-life shift will not only make secondary and tertiary real estate markets more appealing to investors, but will change how we view the spaces in our real estate assets. Less commuting means fewer vehicles, more time at home means dedicated work and office spaces, more appealing outdoor areas, amenities, and the list goes on. It’s time for investors to take a hard look at their investment strategies and product types as we settle into what may be a new normal.

What is happening with home prices and demand?

Big news from the National Association of Realtors (NAR) last week, showing that almost all (96%) of U.S. metro saw price growth with minimal inventory growth during Q1 of 2020. This is compared to 94% the same time last year. Of course, real estate is a lagging economic indicator, but the results are noteworthy given the ongoing pandemic. “The national median existing single-family home price in the first quarter of 2020 was $274,600, up 7.7% from the first quarter of 2019 ($254,900). Forty-six metros, mostly in the West and South regions, saw prices increase by double-digits. These areas include Boise City, Idaho (18.1%), Eugene, Ore. (14.5%) and Colorado Springs, Colo. (14.4%), among others.”

Adam Wiener of Redfin reported last week that home-buying demand has surpassed pre-COVID-19 levels by 5.5%. Redfin data shows that new listings have increased every week since mid-April, and inventory overall is down 24%. Supply can’t keep up with demand! Also of note: “Median listing prices are up 5% and bidding-war battle royales are back.”

Redfin-Homebuying-Demand-Graph-May-10

Source: Redfin

Claire Boeing-Reicher and Matthew Speakman of Zillow joined the conversation, stating that “we now expect sales to fall about 44% in April from their February level…Additionally, we now expect house prices to fall a total of 2.7% by October from their February values. We still expect home prices to return to Q4 2019 levels by Q3 2021, and we continue to place the highest likelihood on our medium scenario and lowest likelihood on our optimistic scenario.”

Further, as CNBC reports an 11% jump in mortgage applications last week (4th straight week of increased applications), we may see some action in teal estate markets this summer after all.

Data: Top markets and OZs

Realtor.com released it’s April hottest markets report which points to an interesting thread that we discussed above. But first, the list:

Realtor.com hottest April 2020 markets

Source: Realtor.com

Clare Trapasso notes “[Our] hottest markets tended to be smaller cities or those outside of larger, more expensive ones…Home listings in these metros received nearly two to three times more listing views than those nationally. And residences are selling 13 to 31 days faster than they typically do in the rest of the country.”

Similarly, ATTOM Data Solutions released its top 10 high-growth opportunity zones report last week.

Top-10-Opportunity-Zones-Q1-2020-CHART-FINAL-3

Source: ATTOM Data Solutions

The report shows that “45 percent of the zones included in the analysis saw median home prices rise by more than the national increase of 11.3 percent from Q1 2019 to Q1 2020.”