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Underneath a hot housing market, an even hotter rental market

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Friday, December 31, 2021

Working from home has hidden costs

As we turn the calendar from 2021, certain pandemic-era macro trends are almost guaranteed to carry over into 2022.

One of them is the housing market, which — much like the labor market, where new unemployment claims remain close to their lowest in decades — is expected to remain hot amid a lack of affordable units. This week, we learned that home prices are showing signs of cooling off from very high levels, a good sign if you’re an expectant first-time buyer.

"The biggest concern and takeaway from 2021 was the lack of inventory,” Weichert Companies' James Weichert Jr. told Yahoo Finance Live this week. “You have a highly, highly competitive market, and real estate transactions … are inherently hectic."

However, that obscures what’s happening in a rental market where prices have been on a tear, emerging as one of the biggest sources of price pressures in 2021. And that is tied to yet another pandemic-era development that’s unlikely to resolve itself in the near future: namely, the number of middle-class professionals working from makeshift home offices.

Speaking from personal experience, remote work is great. But the large number of still remote workers — most of whom have not missed a paycheck since COVID-19 walloped the global economy in 2020 — are indirectly contributing to price pressures.

The WFH phenomenon has helped to drive up rent prices around the country, and in fact was one of the biggest stealth inflationary trends of 2021. In a recent analysis, Quartz reporter Camille Squires found that rents and home prices are soaring anew after a brief lull, thanks to a convergence of two powerful supply and demand forces:

Families looking to buy their first house are being shut out of the market, pushing up demand in the rental market. But this time they’re also rising at a much faster clip than before as property owners make up for lost income during the pandemic.

In Manhattan (where most big-money New Yorkers live), the average salary is over $86,000, according to Adzuna, a job search engine. And in the borough, average prices for apartments of various sizes have all soared by double-digits this year, according to MNS Real Estate data. Wanting a doorman will cost renters significantly more, the firm noted.

Meanwhile, across the water in Brooklyn, the median rent on new leases have jumped by 4.5% (though if it’s any consolation, that’s below the current rate of headline inflation). So what gives?

“People might be looking to move out and on their own after being stuck with roommates during the pandemic,” Adam Ozimek, the chief economist at Upwork, told The New York Times in October. “There’s also a possibility that remote work is playing a role here.”

It’s not just the Big Apple. According to economist and Bloomberg columnist Karl Smith, rent increases have been “more substantial” in places like Tennessee and Idaho, underscoring how “the work-from-home trend has led some well-paid professionals to ditch the city in favor of more rural environs.”

Smith added that working from home “also seems to be pushing some folks toward lower-cost locations. These younger professionals, with incomes that count as modest if they live on the coasts but are still above the national average, have not only substantial purchasing power but sometimes also new families that need housing.”

And with big companies like Google (GOOG), Apple (AAPL), Lyft (LYFT) — and Yahoo Finance’s own parent company Yahoo — all backing away from return-to-office plans set for January, it suggesting that the WFH effect on housing prices will become more entrenched in the face of soaring infections and new variants.

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

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