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Why 2021 was the exception, not the rule, in the property market

After a record-setting year for real estate last year, transaction volumes and prices have dropped, however, 2021 should be looked at as an outlier and not a benchmark according to an expert.

Real estate tech strategist and a scholar-in-residence at the University of Colorado Boulder, Mike DelPrete said there was nothing “normal” about 2021 for the US real estate market.

“The pandemic years, especially 2021, were a strange aberration where everyone moved, house prices skyrocketed, and nearly every real estate business posted record revenues,” Mr DelPrete said.

“This year is constantly being compared to 2021, which was anything but normal, and year-over-year comparisons are painting a deeply negative picture.”

Mr DelPrete said the drop off in sales in the US housing market isn’t that much when compared to long-term averages.

“Assuming a fairly conservative 5.15 million existing home sales in 2022, the comparison to last year is a sobering 16 per cent drop – but 2021 is an outlier, not a benchmark,” he said.

“Compared to the historical average of the previous eight years (2012–2019), transaction volumes in 2022 would be down only 0.9 per cent.

“By contrast, compared to the same historical average, transaction volumes were up 9 per cent in 2020 and 18 per cent in 2021 – notable outliers.”

Comparing 2022’s monthly volumes to the historical average reveals significant falls, but they are less extreme than a year-over-year comparison to 2021, Mr DelPrete said.

“2022 has tracked favourably to the historical average and is still in somewhat ‘normal’ territory, even considering the recent market slowdown,” he said.

Mr DelPrete said despite dropping volumes, the commission pool – which fuels the revenue of real estate agents, brokerages, portals, software providers, and more – is set to be 34 per cent, or $25 billion, higher than 2019.

“This massive increase is being driven by rising home prices,” he said.

“It would take a drop to four million existing home sales for the commission pool to hit what it was in 2019: $73 billion.”

According to Mr DelPrete, 2020 and especially 2021 were radical outliers on a number of levels, real estate being just one.

“Issues of home affordability, dropping sales volumes, and rising interest rates are all contributing to a challenging 2022,” he said.

“But, if we consider 2021 the outlier and not the benchmark, the market in 2022 doesn’t look nearly as catastrophic as headlines suggest.

“In fact, from a business perspective, there is significantly more money flowing through the system (from commissions) than any year other than 2021.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.