If you’ve been following my Boulder County market updates, you may have noticed that this year looks different than 2021. You’re not imagining it–you’ve probably heard chatter about the market slowing down and concerns about rising interest rates.
It’s easy to slip into a negative mindset or fear for the real estate market’s immediate future. However, it’s crucial to be clear-eyed about what the numbers really mean. Real estate tech strategist Mike DelPrete (who’s local to Boulder), recently wrote an enlightening article about why 2021 is an outlier rather than a benchmark. Here’s an overview of his analysis, but if you’d like the full details, head over to his site:
2021 Was Not the Norm
We all remember that COVID-19 upended the real estate market. A lot changed in a short amount of time, and an astounding number of households made the decision to move. In 2021, home prices surged and most real estate businesses enjoyed record prosperity.
In comparing 2021 to 2022, many people feel a sense of trepidation about this year’s market conditions. Yes, it’s true that if you compare 2021 and 2022 existing home sales, we’re looking at a 16% drop from last year. However, as Mike DelPrete notes, this isn’t as sobering as it may appear.
When examined in the appropriate context (comparing 2022 to the historical average of transaction volumes from 2012-2019), sales are down just 0.9%. That’s not nearly as ominous as some headlines you may have seen lately.
There’s no denying that even when put into perspective, the data from 2022 shows a clear slowdown in the market. Regardless, existing home sales have stayed relatively on track with previous years.
Even as we contend with declining sales volume, the commission pool (which is responsible for the revenue of real estate agents, brokerages, software engineers, and more) remains significantly higher than 2019 levels. To be exact, 2022’s commission pool is up $25 billion (34%) from 2019. This is largely driven by the increase in home prices. It would take a decrease of 4 million existing home sales to dip to 2019’s commission pool of $73 billion.
Although home affordability, rising interest rates, and declining sales volumes continue to pose challenges to the market this year, it’s important to view 2022 in the appropriate context. It’s not fair or accurate to compare 2022’s market with that of 2021, since last year was such a significant outlier.