Market Update: Why 2019 Data Is So Important in Assessing the 2021 Market
Last year and 2021-to-date have been anything but the status quo, so it comes as no surprise that this time frame’s peculiarity extends to real estate. To gauge the current state of the market, it’s important to analyze data in a way that takes into account the years’ circumstances, such as the lockdown that went into effect during 2020. The production swings associated with last year’s lockdown are leading to large gyrations in year-over-year comparisons in 2021. Without proper context, one can easily misinterpret what is going on across the industry.
“Sometimes, the headlines will be misleading,” kwx VP of strategic content Jay Papasan shared during a market update at this year’s Mega Camp event. “They’ll say the YoY growth is down, and that’s only because it was so abnormally high last year.”
A Shift in Seasonality
In 2020, a spring lockdown led to a drastic shift in seasonality. Because of those changes, year-over-year comparisons in 2021 are seeing extreme rates of growth and decline. Last year, 41% of sales happened in the first half of the year, and 59% came in from July onward. By contrast, the 2019 breakdown was 47% of sales during the first half, and 53% in the second half – numbers that resemble the projected 2021 breakdown more closely. These swings in the year-over-year growth rate are actually reflective of last year’s market turbulence, and not great indicators of where the market is headed.
So far, the 2021 market has been strong and steady, with Keller Williams’ research team estimating that the split will be 49% of sales for the first half, and 51% for the second half. While comparing these numbers through a YoY lens might look like a significant decline, it’s important to remember that 2021 sales are actually tracking ahead of 2020. Instead, the YoY comparison should be interpreted as a return to normalcy and a confirmation that it’s always a good time to buy and sell real estate.
Understanding the Big Picture
In April 2021, sales were up 34% over the previous year. “Generally, that would be the sign of an explosive market,” explains KW director of research Jim Talbot. “However, remember that April 2020 was the depths of the lockdown, and at the time, all markets were not clear on whether real estate was considered an essential service.” A fairer comparison, he shares, is April 2019. “Sales this past April were up only 12% over April 2019. That rate reflects a strong two years of growth, but is in a more normal range.”
This same thought process should be applied across the board when looking at 2021 numbers. According to Talbot, as of this fall, year-over-year comparisons are faring against the incredibly strong months of last year, when sales pushed from the front half of the year were boosting the sales rate. This results in a decline despite the current strong market. “It’s essential to understand that such declines reflect last year’s numbers and don’t indicate a market shift in 2021,” he shares. In fact, all indicators point that 2021 existing home sales figures will surpass those of last year. The team expects that the year will close at roughly 6 million units sold, in contrast to about 5.6 million reported in 2020.
Putting It on Paper
To put things in perspective, Talbot offers a visual. In December 2020, the sales rate was nearing an all-time record at 6.65 million homes. For the purpose of this example, assume that December 2021 sales will grow by 12% from 2019, yielding a sales rate of 6.21 million for the month. Due to the seasonally shifted rate for December 2020 being so high, this number would still show a 7% decline from the prior year. Talbot argues that understanding the context behind that number is a crucial step in being able to cater to your client as a local expert. “A potential seller who reads about a 7% decline in sales might incorrectly decide that it isn’t a good time to sell, when actually sales and prices are up and inventory is low.”
When it comes to real estate, kwx executive chairman Gary Keller said it best during Mega Camp 2021. “It’s always a good time to buy and sell real estate. If this is the home for you and you have a good reason to buy it, then go ahead and buy it.”