Here’s why home prices may have a new floor

Blame surging housing costs partly on workers wanting to be closer to the fridge.

Why it matters: While other factors that drove prices are receding — including record low mortgage rates — work-from-home habits have changed the demand equation deeply.

Driving the news: A 1-percentage point increase in remote work causes house prices to grow by about 0.9 percentage points, according to a new report from economic researchers at the Federal Reserve Bank of San Francisco and University of California, San Diego.

State of play: An average 38% of workers were remote at least one day in the spring of 2021, up from about 12% pre-pandemic.

• From November 2019 to November 2021, remote work accounted for more than 60% of the overall 24% increase in house prices during that time, and similar increases in rents, the researchers found.

What they're saying: “Remote work increases housing demand for all kinds of housing,” they wrote.

• “Our results suggest that rising house prices over the pandemic reflected a change in fundamentals rather than a speculative bubble.”

Be smart: The pandemic led to historic stimulus checks and new opportunities for people to move around — a set of circumstances we'll likely never see again at the same time.

• But even after accounting for people moving and city sizes changing, "most of the effect of remote work on house prices arises from its direct effect on housing demand," the researchers found.

What to watch: Fed Chair Jerome Powell has talked about a housing reset where inventory grows and bidding wars end.

• Rising mortgage rates, like the average rate on a 30-year fixed-rate mortgage piercing 7% today in a 20-year high, may chip away at the current excess in house prices, but the market may find itself with a new floor.