Is this the real reason home prices soared during the pandemic?

Plus, Does moving still pay? + Mortgage rate whiplash

͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌  May 28, 2022 | Issue #44

Good morning! This week we're talking about the impact of remote work on home prices, the pros and cons of adjustable-rate mortgages and some good news on inventory. Is this the real reason home prices soared during the pandemic? Money; Getty Images Think of the people you know who work from home now, but did not before the pandemic. Did the switch change what they want or need from a home? It definitely did for me (I'm moving to a new city) and for most of my friends (many upgraded to spaces with a home office — or want to). If that's true for your circle too, you've probably intuited that all of that movement had a profound effect on the housing market. New research published by the National Bureau of Economic Research backs up this hunch. Economists from the Federal Reserve Bank of San Francisco and the University of California, San Diego estimate that the shift to remote work explains more than half of the 24% home price growth seen between the end of 2019 and November 2021. They saw a similar impact on rent prices. These findings, the researchers argue, also show that home price growth has been based on "fundamentals" — not a speculative bubble. As of last November, about 43% of U.S. employees were working from home at least some of the time. If remote work persists, the researchers argue, increased housing costs could have a major impact on inflation, shaping the economy for years to come. If remote work fades, however, home prices could fall. Either way, they wrote, "the future of remote work may be critical for the path of housing demand and house prices going forward." For more: Here's the Real Reason for Sky-High Home Prices, According to New Research For more on the case against bubble fears read: What History Tells Us About the Likelihood of a Housing Crash This Year Does moving still pay?   On the other hand, rising mortgage rates, rising home prices and low supply may already be changing the math on a move. That, at least, is the argument of a story from The New York Times this week, which says:   "The simplest and most affordable decision for many Americans will be to stay put — even if their homes become too small, too big, too crowded, too far from work, too isolated from family, or too much to maintain." Ouch. For more: When the Best Available Home Is the One You Already Have Mortgage rate whiplash Kiersten Essenpreis for Money With mortgage rates on the rise, borrowers are looking for alternatives. For some, that means turning to adjustable-rate mortgages. It's easy to see the appeal. The average rate on a plain-vanilla 30-year fixed-rate mortgage is now over 5%, according to Freddie Mac. Meanwhile, the average introductory rate on a 5/1 ARM — which locks in a fixed-rate for just the first five years — has increased at a slower pace to around 4%. Going with an ARM would mean lower initial monthly payments: Let's say you want a $300,000 mortgage. With a 30-year fixed-rate mortgage at a 5.30% interest rate, your monthly payments would be about $1,666. With a 5/1 ARM at 4.08%, you'd pay just $1,446. Before getting too excited, remember that those savings are only guaranteed for five years. After that, your rate and payments can change annually for the next 25. If you don't sell or refinance before the introductory period ends, your taking a gamble. "The worst-case scenario is a borrower stays in a property beyond the fixed-rate term and is now at the mercy of the market regarding what the newly adjusted rate would be," says Pat Sheehy, CEO of mortgage lender Hamilton Home Loans. For more on ARM pros and cons: Homebuyers Are Trying to Save With Adjustable-Rate Mortgages — but It Might Backfire Homebuyers, cross your fingers Shutterstock Burned out by the competitive housing market? The latest weekly inventory data from Realtor.com may offer a bit of hope. During the week ending May 21, the supply of homes for sale was 9% higher compared to the same week last year. That's the largest year-over-year increase since the listing site started tracking housing inventory in 2017. It was also the second straight week of supply growth. Even better? Looking ahead, Realtor.com Chief Economist Danielle Hale says: "Recent inventory improvements are expected to eventually tip market conditions in a more buyer-friendly direction, and one we expect to provide relief from surging asking prices later in the year." Low supply, however, remains a big problem and has been for years. So it might help to cross your toes too. For more: Finally, More Houses Are for Sale — But the Supply Crisis Is Far From Over Happy hunting, P.S. Share your move stories with me on Twitter @samsharf or via email at sam.sharf@money.com. P.P.S. Have a friend who loves real estate or is looking for a home of their own? Please forward them this email or send them to the Money Moves subscription page. Money's Essential Home Buying Resources: Spring 2022 On the hunt? Check out Money's Mortgage Calculator, list of The Best Mortgage Lenders and look at the latest mortgage rates Thinking of refinancing? Our list of The Best Mortgage Refinance Companies can help. You can also use our Mortgage Refinance Calculator or these refi tips Key question: How much house can I afford?

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