Working From Home

Question:  Has the increase in work-from-home employment influenced the housing sector?

Answer: The answer is yes. More Americans working from home is a game-changer for housing. In 2022, housing demand in certain areas continues to outpace supply. Home prices, rents and mortgage rates are all expected to rise. The impetus for the change to more Americans working from home (WFH) was initially in response to the COVID-19 pandemic. As we continue into the third year of this phenomenon, many workers seem to favor the flexibility and less rigid requirements of being tethered to a specific location. The choice of where to live, and flexible schedules in many industries, will shape the dynamics of the housing sector. 

According to the director of equity research, Buck Horne, CFA at Raymond James, the WFH social experiment is “wildly successful.” Post pandemic, 91% of workers who are currently working at least partly remote hope to maintain this WFH flexibility going forward. Forty-nine percent of remote workers suggest that losing those WFH options would increase the likelihood of them looking elsewhere for employment and 31% said it was “extremely likely” that a loss of WFH options would cause them to look for new employment.

Heading South

Workers can vote with their feet as job choices can be based on where to live, quality of life, and not just solely on job availability. In many instances, these new options are empowering and lead to new careers. Job growth and population shifts into the Sun Belt will continue. “We see pricing power available in markets with deepening housing shortages, particularly in Florida, Arizona, Nevada, Texas, and North Carolina,” said Horne.

A new term that arose from the WFH trend is “domestic out migration” or mass exodus from high-tax states. There is an inflow of young, talented workers into desirable locations. WFH flexibility will continue thanks to technology, and employers are responding by moving jobs and offices to these lower cost locations. Not surprisingly, the states with the greatest housing shortages are also the areas where home builders have the greatest ability to build new single-family homes. 

But is it Affordable?

It is anticipated that home prices and effective rent levels, while accelerating at a slower pace than in 2021, will continue to grow faster than in the past, and likely outpace core inflation rates. The move from population-dense areas to less crowded areas could open more land locations for potential development, helping to solve the housing affordability dilemma, or hopefully lessen the price increases. As always, prices boil down to supply in demand.

As a reminder, the unprecedented fiscal response to the COVID-19 pandemic contributed to a record level of liquidity for U.S. households and businesses which has strengthened and supported changing housing trends. With interest rates and mortgage rates rising at a controlled pace in 2022, affordability will remain reasonable. Population migration, household income growth and liquidity levels helping to fund down payments all combine to provide a disinflationary effect.

For the foreseeable future, it is expected that housing demand will outpace production capacity. The WFH occurrence is here to stay fueled by the durability and continued evolution of technological advancement. This means there will be a range of opportunities and changes in this sector. Typically, investors account from 10-15% of total home sale purchases. According to Gallup, in September 2021, the monthly share of investor home purchases was over twenty-six percent.

As with other sectors of the economy, the global supply chain will ultimately determine the pace of inflation in the near term more so than interest rates. The hope is for COVID restrictions to lift in China and around the globe. As the supply chain improves, thoughts of recession and higher interest rates may lessen. If the supply chain worsens, more rate hikes may be likely and recession fears could accelerate. This all impacts the housing market, yet WFH is here to stay and could grow as a possibility for many workers. Stay focused and invest accordingly. 

The opinions expressed are those of the writer as of January 30, 2022, but not necessarily those of Raymond James and Associates, and subject to change at any time. All investments are subject to risk, including loss. Diversification does not ensure a profit or protect against a loss in a declining market. This material is provided for educational purposes only. Past performance is no guarantee of future results. There is no assurance the trends mentioned will continue or that forecasts discussed will be realized. Economic and market conditions are subject to change. Material is provided for informational purposes. Consult your tax professional and financial advisor before making any investment decisions. 

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email darcie.guerin@raymondjames.com Website: www.raymondjames.com/Darcie.