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Home Sales Spike as Millennials, Boomers Ditch City Living

Housing sector gets work-from-home boost

More Americans working from home has proved a game-changer for housing.

Housing demand is expected to outstrip capacity in 2022 with home prices, rents, and mortgage rates forecast to rise. A major factor shaping housing dynamics is the shift to work from home (WFH) in response to the COVID-19 pandemic. Untethering workers from physical proximity to offices means more flexibility to choose where they live.

WFH a success

“From our perspective, the wildly successful mass social experiment in WFH is leading to a productivity boom, with lasting changes in both employment arrangements and housing preferences,” said Buck Horne, CFA, director of equity research at Raymond James.

  • 83% of employers report WFH a success.*
  • 91% of workers currently working at least partly remote are hoping to maintain WFH flexibility post-pandemic.**
  • 49% of remote workers suggest losing WFH options would increase their likelihood of looking elsewhere for employment. 31% said it was “extremely likely” a loss of WFH options would cause them to look for new employment.**

Expect more Sun Belt migration

Given new options to live where they want, workers are now increasingly empowered to vote with their feet. High-cost, high-tax markets will see significant outmigration to Sun Belt states. “Looking ahead, we think the job growth and population shifts into the Sun Belt markets will keep coming. We see more pricing power available in markets with deepening housing shortages, particularly in Florida, Arizona, Nevada, Texas, and North Carolina,” Horne said.

Domestic outmigration from high-tax states has been a consistent trend for many years. What’s different now is that the inflow of young, talented workers has shifted, WFH flexibility will prove enduring, and employers have responded by moving jobs and offices to these lower-cost locations. Accordingly, the states with the deepest housing shortages are also the areas where homebuilders have the greatest ability to build new single-family homes.

WFH helps solve for affordability

The de-densification movement could also open up more land locations for potential development, helping solve the housing affordability dilemma. Home prices and effective rent levels, while decelerating from 2021 levels, will both grow above historical trends and likely outpace core inflation in the U.S. economy, according to Raymond James Equity Research.

The unprecedented fiscal response to the pandemic has also poured a record level of liquidity into U.S. households and businesses, which may help bolster housing trends. Mortgage rates will steadily rise in 2022, but at a controlled pace. Affordability will remain reasonably balanced at a local level, due to strong household income growth, sizeable down payment availability, and the disinflation effect of population migration.

Fueled by positive household demographics, economic growth, and the durability of WFH, Horne expects housing demand will outstrip industry production capacity well into the foreseeable future, providing a range of opportunities for investors. Investor home purchases typically account for 10-15% of total home sales. In September 2021, the monthly share of investor home purchases was over 26%, according to Raymond James Equity Research.

“The housing ‘supercycle’ is still in its early innings, with years of growth ahead,” said Horne.

 

*Source: PwC, 2021

**Source: Gallup, September 2021

 

All investments are subject to risk, including loss. All expressions of opinion reflect the judgment of the author and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change.

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