Soaring home prices nearly doubled seller profits in 2021

Soaring home prices nearly doubled seller profits in 2021

By  Brad Finkelstein

Those who opted to sell their homes in 2021 recorded an average profit of $94,092 on the typical sale, according to a report from Attom Data Solutions. That was up by 45% from $64,931 in 2020 and up 71% from $55,000 two years prior.

Compared to 2021 sellers earning a 45.3% return on their initial investment, in 2020, the ROI was 33.6%, while in 2019, the last full year in non-pandemic conditions, it was 30.6%.

This 12 percentage point year-over-year increase was the biggest annual gain since 2013, Attom added.

Median home prices increased 16.9% to $301,000 in 2021 according to Attom’s calculations.

“All that happened as the virus pandemic raged on, which actually helped drive the increases instead of stifle them,” Todd Teta, Attom’s chief product officer, said in a press release. “Households that escaped job losses from the pandemic dove into the market, in large part as a response to the crisis.”

A separate report from Zillow calculated that U.S. home owners gained a record $6.9 trillion in equity last year, with the total housing stock valued at $43.4 trillion. The 2021 increase was more than double the previous record annual gain of $3.7 trillion for 2005.

“Even in the context of a year in which several housing records were topped, the scale of the housing market’s growth in 2021 is eye-popping,” said Zillow senior economist Jeff Tucker. “Not only did prices rise faster than ever, but more homes were built than in any year since 2007 as builders raced to meet demand.”

But a huge disparity exists between the high and low ends of the market. Nationally, the top one-third of highest-valued homes make up 60.8% of the total market value, while the lowest-valued one-third accounts for 12.8%, Zillow said. By location, 21.3% of the nation’s housing value is located in California at $9.2 trillion. Meanwhile, 13 other states have a total value over $1 trillion.

Home prices nationally rose 15.9% on an annualized basis between November and December, the tenth consecutive month in which month-over-month home prices rose more than 10%, according to the Radian Home Price Index. Data used to calculate the index comes from Red Bell Real Estate, which is owned by Radian Group.

On a year-over-year basis, the Radian HPI rose 14.2%. In 2021, the 12-month rate of appreciation was nearly double the rate of 8.0% set in 2020.

The average sales price for 2021 was a record $457,000, up from the previous high of $381,000 in 2020. In December, Radian estimated the median sales price was $307,022.

“The median owner saw an estimated increase of more than $38,000 in their home value, creating trillions of dollars in potential borrower equity,” noted Steve Gaenzler, Radian’s senior vice president of product, data and analytics. “However, the market remains tough for many would-be buyers — competition is fierce, supply is low, entry-level options are more limited than ever before, and for the first time, more than one-quarter of homes sold cost $500,000 or more.”

In December, homes that sold for prices greater than $500,000 represented 28% of all sales, while in the same month in 2019 those homes accounted for 16%. On the other hand, lower priced homes, those selling below $250,000, only made up 11% of sales in December 2021, down from 18% two years prior.

If during 2020, the inventory shortage was dire, “since then, it has only gotten worse,” said Gaenzler. “The combination of limited supply and record-high demand has buoyed prices and shrunk the time it takes for homes to sell, but it has also made it a very difficult market for many potential buyers.”

But as 2022 starts, mortgage rates are rising, further affecting affordability. And experts expect more hikes to come.

“No doubt, there are warning signs that the surge could slow down this year,” Attom’s Teta said. “But 2021 will go down as one of the greatest years for sellers and one of the toughest for buyers.”

What might be good news for buyers is that existing homeowners are electing to move sooner than in recent years. Those that sold in the fourth quarter owned their homes for an average of 6.14 years, the shortest average tenure since the first quarter of 2012, Attom said. This was down from 6.34 years in the previous quarter and from 8.03 years in the fourth quarter of 2020.

“Skyrocketing home values may be celebrated by longtime homeowners, but are daunting for those trying to buy their first home,” Zillow’s Tucker added. “This year is likely to be less competitive for buyers, but it will continue to be a sellers’ market.”