EXPERTS: WORK FROM HOME IS HERE TO STAY

EXPERTS: WORK FROM HOME IS HERE TO STAY

More inventory is on the way

An overwhelming majority (95%) of more than 100 economists and real estate experts surveyed by Zillow as part of the Q1 2021 Zillow Home Price Expectations (ZHPE) survey said an increased preference to work remotely at least part-time is a permanent shift. The quarterly survey, sponsored by Zillow and administered by Pulsenomics, also asked experts for their views on the rental market, housing inventory and their expectations for home value growth this year and over the next five years.

The experts said they believe the pandemic has permanently altered consumer preferences regarding where office work gets done. Nearly all respondents said the consumer preference for working from home at least part-time will be an enduring legacy of the pandemic. Roughly a third of them (36%) said the recent shift to full-time work from home in favor of full-time in-office work will prove permanent.

Panelists were more evenly split regarding the permanence of other pandemic-driven shifts in attitudes towards where we live and the ideal size of our homes. When asked about Americans’ preference for living in the suburbs over urban areas, the same share of ZHPE panelists said the shift was permanent as said the shift was temporary (46%).

The results were similar when asked whether consumer preference has changed in favor of proximity to smaller cities over larger cities, or larger homes in favor of smaller homes.

SUPPLY & DEMAND

The pandemic changed many expectations of what we want and need from our homes, and ushered in a surge of demand from homebuyers in search of a different space in which to work, play and educate. This red-hot demand means that in the current market, buyers are often plucking homes off the market just days after they are listed, thanks in part to technology that’s making home buying and selling faster and easier. The speed with which homes are selling is one factor contributing to low inventory, which has steadily declined during the pandemic and now sits about 30% less than a year ago. This high demand, coupled with limited inventory, is pushing home values up at a pace not seen since before the Great Recession. ZHPE panelists, on average, said they expect home values to grow 6.2% in 2021 — a full two percentage points higher than when they were surveyed in Q4 2020 — and several panelists called for double-digit price growth this year.

But the experts also see a shift coming that could upend this longstanding inventory drought and coinciding rapid runup in home value appreciation. More than two-thirds (69%) of panelists said they expect inventory will begin to grow in the second half of this year or the first half of 2022. An increase in existing homes being listed for sale is expected to be the biggest factor in the reversal, with 38% of panelists saying that is the most likely catalyst for inventory growth.

Inventory growth should cool down home value appreciation. While panelists expect home value growth this year to be almost double its pre-bubble, historically “normal” annual pace of 3.6%, they expect a slowdown through the middle of the decade. On average, panelists said they expect annual home value growth to slow to 4.5% in 2022, slowing further to 3.7%, 3.5%, and 3.6% in 2023, 2024, and 2025, respectively. Even with an anticipated slowdown to levels more in line with historic norms, the recent stretch of rapid home value growth is extraordinary.

“This is the most bullish near-term outlook for home prices we’ve seen from our experts since the early stages of the post-bust recovery, and the panel’s five-year average annual home price forecast has never been more optimistic,” said Terry Loebs, founder of Pulsenomics. “In the wake of last year’s heady home equity gains, these new projections indicate that the aggregate value of homes across the country will increase by another $2 trillion in 2021. This is great news for existing homeowners, but even with a robust economic rebound in the coming months affordability will likely remain a challenge for many aspirational renters looking to move into homeownership this year.”

LOOMING EVICTION CLIFF

Although the for-sale market has soared over the past year, the rental market has stagnated as renters have borne a disproportionate amount of the job losses and broader economic burden brought on by the pandemic. A federal eviction moratorium that has been extended several times has succeeded in keeping a roof over many renters’ heads, but at some point this and other moratoria will end.

It’s important to note that not all struggling renters currently at risk of eviction will be evicted, and panelists on average believe a large majority (85%) of these renters will either find ways to remain in their current home or will avoid eviction by moving to a less-expensive home. Still, panelists said they expect some 15% of currently distressed renters will ultimately be evicted, representing millions of households.

And even for those distressed renters that do remain in their homes, they may find it somewhat more difficult to make ends meet depending on how their landlords react to changing market conditions and/or how they work out owed back rent — if any — depending on their

circumstances. Panelists said they expect that 39% of these renters will experience a modest or substantial decrease in rent affordability after eviction moratoria expire, larger than the shares for which affordability would not change (37%) or for which affordability would improve (24%).