As Prices Surged, Home Sales in 2021 Were The Highest in 16 Years

0
206

ATTOM reported This Week in Real Estate that home sellers in 2021 realized a 45% return on investment compared to the original purchase price – the largest profit margin since at least 2008. As prices surged, home sales in 2021 were the highest in 16 years and Fannie Mae forecasts sales of existing homes to slow by just 3.2% in 2022, which would represent the second fastest annual pace since 2006. Below are a few newsworthy events from the fourth week of January that influence our business: 

U.S. Home Seller Profits Soar Again In 2021 As Prices Shoot To New Records. ATTOM released its Year-End 2021 U.S. Home Sales Report on Thursday, which shows that home sellers nationwide realized a profit of $94,092 on the typical sale in 2021, up 45 percent from $64,931 in 2020 and up 71 percent from $55,000 two years ago. The $94,092 profit on the median-priced home sale in 2021 represented a 45.3 percent return on investment compared to the original purchase price, up from 33.6 percent last year and from 30.6 percent in 2019. The latest profit margin also stood out as the largest since at least 2008. “What a year 2021 was for home sellers and the housing market all around the U.S. Prices went through the roof, kicking profits and profit margins up at a pace not seen for at least a decade. All that happened as the virus pandemic raged on, which actually helped drive the increases instead of stifle them,” said Todd Teta, chief product officer at ATTOM. 

Fed Rate Hike Coming in March. At the conclusion of its January policy meeting, the Federal Open Market Committee strongly signaled that it will undertake its first, post-covid increase of the federal funds rate in March. The Fed is tightening monetary policy in response to the highest inflation readings in nearly 40 years. Housing market stakeholders should be prepared for four 25 basis point federal funds rate increases over the course of 2022. It is possible that the first rate hike could be larger than 25 basis points, given the current overshoot of inflation. However, while possible, this seems less likely than not given the more preferred, orderly approach the Fed has been telegraphing for moving from accommodative monetary policy to tighter, anti-inflationary policy. It is important to note that there is not a direct connection between federal fund rate hikes and changes in long-term interest rates. Indeed, during the last tightening cycle, the federal funds target rate increased from November 2015 (with a top rate of just 0.25%) to November 2018 (2.5%), a 225 basis point expansion. However, during this time mortgage interest rates increased by a proportionately smaller amount, rising from approximately 3.9% to just under 4.9%. 

Inflation Keeping House Prices High, Even With Rising Mortgage Rates. If you’re a homebuyer hoping for a break on home sale prices amid rising mortgage rates, it’s likely not happening this year, or next. Aside from record-low inventory, a big culprit for even higher home prices points to inflation. “It’ll [inflation] keep them positive. I don’t expect to see 18% in price appreciation. That’s a function of all the stimulus that was in the economy and the urge to move away from the virus,” Doug Duncan, chief economist at Fannie Mae told Yahoo Finance. “But we do expect house prices to be positive.” “The history of the relationship between interest rates and house price is vastly misunderstood,” he said. Duncan. “If you go back to the late 70s, early 80s, when the interest rates were 15% to 18%, house prices rose. House prices and interest rate are not correlated,” said Duncan. “What is correlated to interest rates is the number of homes sold.” Even with low inventory, home sales were highest in 16 years in 2021. “We forecast the sale of existing homes in 2022 to slow by only 3.2 percent from 2021, which would still represent the second fastest annual pace since 2006,” reads Fannie Mae’s latest research on the housing market. Fannie Mae predicts a rise of 7%-8% year over year in the cost of a house. The mortgage giant’s forecast is one of the more conservative outlooks. Goldman Sachs predicts a 16% year over year average price increase in housing for 2022.

Did you know every home listed for sale with Berkshire Hathaway HomeServices Northwest Real Estate and Berkshire Hathaway HomeServices Real Estate Professionals is eligible to receive no-obligation home warranty coverage from American Home Shield or 2-10 Home Warranty the first six months the home is listed with our company?