Why the death of remote work isn’t making suburbs cheap again
Potential homebuyers may see return-to-work trends as a chance to finally see prices in the suburbs take a haircut.
In theory, this should lead to more supply and falling prices in the suburbs—but it hasn’t.
Unfortunately, the mass migration of remote workers is not likely to reverse the pandemic-era “donut effect” of higher home price growth in the suburbs than in metropolitan areas.
Multiple headwinds are keeping house supply low, and more people are still trying to move out of cities than into them.
More out than in
Many remote workers who bought homes during the pandemic are finding themselves in a bind, needing to unload their homes quickly and return to high-density areas where rent is stabilizing at record highs.
Some have to weigh taking a loss on homes they just bought or risk losing their jobs.
Despite remote workers returning to cities, net migration in large metropolitan areas is still negative.
In the 12-month period ending March 2023, the New York City metro area saw a 16% net migration loss. San Francisco, San Jose, and Chicago had the biggest percentage drops of 34%, 36%, and 33%, respectively.
“The pandemic intensified existing homebuyer migration patterns and shows a population in pursuit of affordable housing,” according to a September 2023 report by Freddie Mac.
“The highest homebuyer net migration losses have occurred in high-cost, inelastic markets located in coastal areas. The metro areas experiencing the most gains in homebuyer net migration are smaller, more affordable destinations found more inland and to the south.”
Factors working against migration
Homebuyers looking in the suburbs are still facing a market with limited supply. While home prices have gone up, home sales have gone down.
One reason is that many homeowners who locked in low interest rates during the pandemic have found themselves trapped by “Golden Handcuffs.”
With a 30-year fixed rate mortgage topping 7.5% as of Oct. 6, 2023, people who have mortgages closer to 3% are finding they may not be able to buy a new home after they sell.
Rental prices are also up across the U.S., changing the math for many people who own homes, even those whose jobs are asking them to move back.
In New York City, for example, the median rental price is $3,650, up $213 over the last year.
While home prices are also surging in the suburbs, areas outside of major cities still remain more affordable for renters.
“One in five Americans have relocated or have made plans to relocate in the last year, reports the Ipsos Consumer Tracker in July 2023. “Of these Americans that are on the move, one in three say they’re off to suburban areas (31%).”
Still a seller’s market
Despite the plight of some remote workers, it is still a seller’s market in the suburbs. Prices across the U.S. remain far from pre-pandemic prices and do not show signs of reversing its trend.
The status of remote work may also be uncertain.
At the beginning of 2022, forecasters were still predicting that remote work wasn’t going away. “25% of all professional jobs in North America will be remote by the end of 2022, and remote opportunities will continue to increase through 2023,” Forbes reported in February 2022.
Corporate sentiment appears to be shifting again, with 90% of companies planning to return to the office by the end of next year, according to a recent survey of 1,000 executives.