Percent loss in value of residential real estate oligopolies due to hybrid work

[bizaro86]

How steep the demand curve is matters as well. There are absolutely people who currently either don't live in expensive cities or take long commutes solely because they can't afford to live closer. Small drops in price have the potential to increase demand from people who are priced out of the market.

 

The demand to relocate out of expensive cities seems to be high according a survey by Blind, which verifies employees by asking them to provide their company email address.

 

Roughly third are willing to relocate even with a pay cut.  In addition, 40-45% will relocate without a paycut, depending on city/company.

 

Here are results broken down by company and by city:

https://www.teamblind.com/blog/index.php/2020/09/14/44-of-professionals-are-happy-to-take-a-pay-cut/

https://usblog.teamblind.com/wp-content/uploads/2020/05/PayCut.pdf

https://docs.google.com/spreadsheets/d/1zF_jxowBZYkiJIeatZAm3soelVBpoFf1TbjEZVwxBpA/edit#gid=171959972

 

I don't think that's the demand curve Bizaro was referring to.  You appear to be trying to identify the number of people currently living in cities who would move elsewhere if they believed they could.  I believe he's asking about the demand from people who would like to live in cities (or different cities) but currently do not because it is not practical for them (cost, location) to do so.

 

Is it possible that widespread WFH actually increases demand for certain cities, because people who historically had to work in say, Omaha, Des Moines, Little Rock or Tulsa can now live in NYC,  Boston or LA?  Likewise, is it possible that housing in Minneapolis becomes more in demand because WFH frees people from living in, for example, Duluth?

 

Put another way, your comments seem to assume that people are in cities because that's traditionally where good jobs have been.  But what if it's the other way around:  Goods jobs are traditionally in cities because that's where people want to be?  If it's primarily the latter -- and if the desire to live in cities going forward has not changed -- when how would widspread WFH affect demand for urban housing?

 

Applying this framework to the Detroit example, vacancies were high and housing prices low, not just because people left but also because other people did not want to move in.

 

That is exactly what I meant.  :D

 

I think places that are desirable for lifestyle reasons will probably remain desirable for those exact same reasons.

[CorpRaider]

Yeah I'ma fade this.  Youngs trying to get dates through the local church group so they can go get some papa johns?  Nah man.

[thepupil]

so this is all of course anecdotal, but I beyond multifamily / condos, I have seen very little evidence of any loss in value of well-located  residential real estate. the single family market seems to be universally doing well, both close to cities and further out

 

my zestimate (which seems correct based on some recent sales/comps, but not a huge # of data points because inventory / transaction activity is so low) has gone from $470 / foot (2019 real price) to ~$513/foot. there's no reason to pay those prices unless you value the convenience and lifestyle of living near the city / in good school districts, access to restaurants, airports, amenities, etc. i don't think WFH has drastically changed the value of those things.

 

as long as people are realistic on pricing, homes continue to sell w/i a couple of days of listing.

 

this probably has more to do with how low rates are, but you'd think that if everyone wanted to have 4K sf and an acre in the exurbs, people wouldn't be tripping over themselves to buy 2K sf on 1/4 acre near the city (for more $)

 

i think WFH will make people priced out into the exurbs have a better life, they won't have to commute every day, but it's not clear to me that there will be marked decrease in pricing for well-located close-in convenient real estate near cities. maybe if rates rise significantly that will change.

 

here's an example of the type of thing that i think needs to correct pretty hard:

 

https://www.zillow.com/homedetails/7171-Woodmont-Ave-UNIT-307-Bethesda-MD-20815/166716517_zpid/

 

2015 built condo offered at $740K / $690/foot, sold for $800K in 2016. you can see this was a rental asking $3,300 / month pre-covid). this building is popular with downsizing boomers who want to live a convenient walkable and luxurious lifestyle (not a thing during covid, but probably will still be afterwards).

 

This building was built at the exact time (I think by the same developer) as a rental building across the street, where you can rent a similar unit for $3,600 / month, that's before any incentives.

https://www.flatsatbethesdaavenue.com/floor-plans/apartments?bed_count=2

 

I'd say the market rental rate for the condo is $2,700 - $3,000

 

so if you bought the condo for cash at $740K, you'd have $800/month in HOA and $700/month in property taxes=$1,500 of cost and you'd be getting about $3,000 / month in imputed rent for a $1,500 / month "NOI" = $18K / year = $18K / $740K = 2.4% cap rate.

 

The fact that it's "expensive" doesn't really matter so much as there are 100's more of these being built and rent growth is not likely in the near term or intermediate term.

 

single family homes trade at similar cap rates, but there' no more land to create more of those and demand > supply. 

 

 

[LearningMachine]

so this is all of course anecdotal, but I beyond multifamily / condos, I have seen very little evidence of any loss in value of well-located  residential real estate. the single family market seems to be universally doing well, both close to cities and further out

 

my zestimate (which seems correct based on some recent sales/comps, but not a huge # of data points because inventory / transaction activity is so low) has gone from $470 / foot (2019 real price) to ~$513/foot. there's no reason to pay those prices unless you value the convenience and lifestyle of living near the city / in good school districts, access to restaurants, airports, amenities, etc. i don't think WFH has drastically changed the value of those things.

 

as long as people are realistic on pricing, homes continue to sell w/i a couple of days of listing.

 

this probably has more to do with how low rates are, but you'd think that if everyone wanted to have 4K sf and an acre in the exurbs, people wouldn't be tripping over themselves to buy 2K sf on 1/4 acre near the city (for more $)

 

i think WFH will make people priced out into the exurbs have a better life, they won't have to commute every day, but it's not clear to me that there will be marked decrease in pricing for well-located close-in convenient real estate near cities. maybe if rates rise significantly that will change.

 

here's an example of the type of thing that i think needs to correct pretty hard:

 

https://www.zillow.com/homedetails/7171-Woodmont-Ave-UNIT-307-Bethesda-MD-20815/166716517_zpid/

 

2015 built condo offered at $740K / $690/foot, sold for $800K in 2016. you can see this was a rental asking $3,300 / month pre-covid). this building is popular with downsizing boomers who want to live a convenient walkable and luxurious lifestyle (not a thing during covid, but probably will still be afterwards).

 

This building was built at the exact time (I think by the same developer) as a rental building across the street, where you can rent a similar unit for $3,600 / month, that's before any incentives.

https://www.flatsatbethesdaavenue.com/floor-plans/apartments?bed_count=2

 

I'd say the market rental rate for the condo is $2,700 - $3,000

 

so if you bought the condo for cash at $740K, you'd have $800/month in HOA and $700/month in property taxes=$1,500 of cost and you'd be getting about $3,000 / month in imputed rent for a $1,500 / month "NOI" = $18K / year = $18K / $740K = 2.4% cap rate.

 

The fact that it's "expensive" doesn't really matter so much as there are 100's more of these being built and rent growth is not likely in the near term or intermediate term.

 

single family homes trade at similar cap rates, but there' no more land to create more of those and demand > supply.

 

My handicapping model is mostly consistent with what you're saying.  Currently, I see three key features impacting what human neural nets' desire:

* #1. Avoid multifamily due to Covid risk

* #2. More willingness for some folks to commute some more miles from their employer as a result of WFH announcements while still staying near the city / in good school districts, access to restaurants, airports, amenities, etc.

* #3. Interest rates

 

Presence of all three features is already starting to have positive impact on pricing of residential real estate in exurbs. 

 

Currently, these features are also having somewhat positive impact on residential real estate in suburbs, next to key employers. When Covid is over, #1 feature will stop having an impact, while #2 will continue.  The impact of #1 stopping will effectively release a supply of multifamily housing that is currently being avoided, which will have some negative impact on price of houses that are currently being bid up just for feature #1.

 

To handicap the impact of #2, I've been looking at various pieces of data.  Here are a couple of the data points to consider.

 

First, here is what Zillow found at: https://www.zillow.com/research/coronavirus-remote-work-suburbs-27046/

 

Previous Zillow research 1 found renters, buyers and sellers overwhelmingly agreed that the longest one-way commute they’d be willing to accept when considering a new home or job was 30 minutes.

 

This new survey from Zillow and The Harris Poll finds those priorities appear to change if people have the flexibility to work from home regularly. When given that option, half of those who are able to do their job from home (50%) say they would be open to a commute that was up to 45 minutes or longer.

 

Next, I did a survey myself with two questions:

(a) What is the max you would have commuted pre-Covid when you had to work in office 100%?

(b) What is the max you would be willing to commute post-Covid assuming your company will let you WFH 50% without manager approval and 100% with manager approval?

 

The results are enlightening and consistent with Zillow.  Percentage of people who used to be willing to commute only 15-minutes has gone down drastically.  Percentage of people who used to be willing to commute only 30-minutes has also gone down a lot.  Percentage of people willing to commute 45-minutes or 60-minutes for their dream house has gone up a lot.

[thepupil]

What’s an example of an exurb that you think will do well because of WFH over the next 5-10 years.

[LearningMachine]

What’s an example of an exurb that you think will do well because of WFH over the next 5-10 years.

 

Looking at Seattle area, these are areas that are desirable for high-tech workers or support workers for different reasons.  Here are some examples:

• Good school districts: Dieringer School District (Lake Tapps, WA), Bainbridge Island School District, Tahoma School District, Snoqualmie Valley School District, University Place School District, Pullman School District, etc.
  
• Waterfront/island living: Warm Beach, Bainbridge Island, Kitsap Peninsula in general, Camano Island, Whidbey Island, Lake Tapps, Lake Stevens, San Juan Islands, etc.
  
• Access to airport: Areas within x miles of SeaTac airport.
  
• Areas giving access to multiple metropolises for support workers: Mount Vernon, WA.
  
• New construction: Monroe, Marysville and Snohomish County in general, Maple Valley, Enumclaw, Snoqualmie, Pierce County, Skagit County, etc.
  

 

For San Francisco/silicon valley, I'm hearing Lake Tahoe is getting popular.  Another thing that is incentivizing silicon valley folks to work out of Nevada or Texas is zero income-taxes.

 

[thepupil]

Suburban DC Maryland data; price up 10%-11% for the zip codes with only SFH, collapse in transactions.

 

Note the hopeful tone from realtor that prices will “come back down to earth” easy to understand why this actually hurts realtors as they get paid on transactions.

 

Not taking my 10% to the bank, but happy to own some expensive ass dirt with eroding tiny structure on top for well below the average dirt+house cost of $1.5mm

 

 

[thepupil]

really not much wisdom to share. I don't think work from home will drastically affect well-located single family homes that derive some of their value from being close to cities.

 

maybe that's me just being delusional. I just think that for the most part rich people pay to be around other rich people: good schools/amenities/etc. and that proximity to major metropolitan areas has appeal beyond short commutes. we'll see. perhaps my straight up and to the right zestimate is making me feel overconfident.

 

 

hyper elitist education for the win. Palm Beach Day just ain't gonna cut it. Dalton or Bust!*

 

https://www.bloomberg.com/news/articles/2021-03-10/wall-street-a-listers-fled-to-florida-many-are-eyeing-a-return

 

The main drivers for people to stay in New York are access to top private schools and a bigger pool of young professionals to fill jobs, according to interviews with several hedge fund executives.

 

 

*for the record, pupil went to a poseur south florida prep school, not in NYC/Northeast

 

[Spekulatius]

really not much wisdom to share. I don't think work from home will drastically affect well-located single family homes that derive some of their value from being close to cities.

 

maybe that's me just being delusional. I just think that for the most part rich people pay to be around other rich people: good schools/amenities/etc. and that proximity to major metropolitan areas has appeal beyond short commutes. we'll see. perhaps my straight up and to the right zestimate is making me feel overconfident.

 

 

 

 

hyper elitist education for the win. Palm Beach Day just ain't gonna cut it. Dalton or Bust!*

 

https://www.bloomberg.com/news/articles/2021-03-10/wall-street-a-listers-fled-to-florida-many-are-eyeing-a-return

 

The main drivers for people to stay in New York are access to top private schools and a bigger pool of young professionals to fill jobs, according to interviews with several hedge fund executives.

 

 

*for the record, pupil went to a poseur south florida prep school, not in NYC/Northeast

 

Arn't public schools in Florida total crap? That's what my wife heard from folks that moved there from Long Island. LI school were excellent when we lived there.

[CorpRaider]

I am not surprised that the young professionals and intelligentsia prefer to be where the other young professionals and intelligentsia are. 

[ValueArb]

I’m paying ridiculous rent to keep my kids in a good school district, but am seriously considering moving to Cancun and letting ex-wife carry the burden for once. My day job has been remote before COVID, and no reason I can’t do it and invest remotely from somewhere with a beach and jet skis.

[fareastwarriors]

Homebuyers Are Heading to Florida During Covid, But Nearly As Many Are Moving Out

 

Thanks to hurricanes, heat and red-hot home prices, the state’s population growth hit its lowest rate since 2014 during the pandemic

 

https://www.wsj.com/articles/people-moving-to-florida-during-covid-11615463911?mod=hp_featst_pos3

[fareastwarriors]

Goldman Sachs Seeks Volunteers for Move to West Palm Beach Digs

 

A couple hundred people might go, and more could follow later

Top executive Stephanie Cohen plans a second office in Dallas

 

https://www.bloomberg.com/news/articles/2021-03-18/goldman-sachs-drafts-volunteers-for-move-to-west-palm-beach-digs