Last year, buyers spent nearly $3 trillion on real estate
In 2021, people spent more on real estate than ever before. Over the last year, the total value of residential transactions was over $2.8 trillion dollars, exceeding the previous highs recorded in both 2020 and 2005 by more than $600 million. Figure 1 shows the total value of transactions each year from 2000 to 2021. Even more staggering than total transactions in 2021 is its comparison to 10 years prior. In 2011, the total amount spent on housing sales was under $1 trillion, more than $2 trillion less than in 2021.
The biggest reason for this surge is home price increases. At the end of 2021, prices were 50% above their highest point before the market crash in 2006. Additionally, sales were elevated and 2021 had the largest number of transactions in over 15 years. For the fourth time in history, the number of residential units sold exceeded 7 million.
However, high prices and high sales numbers do not completely explain the surge in total sales value. The difference in the types of homes being purchased is another important factor.
Compared to today, home sales in the 2000s favored smaller units in lower-priced areas, reflecting the prevalence of subprime mortgages at the time. Since 2020, sales have aligned with more expensive and spacious homes that can facilitate home offices. The average square footage of a home purchased in 2005 was 1,750 square feet, which is 90 square feet smaller than in 2021. More has been spent on housing than ever before not just because prices are higher and more homes have been sold but because the homes are bigger.
Will the total value of transactions in 2022 exceed 2021? Strong price increases in January and February of this year suggest that it is possible, but overall, it seems unlikely. Such high prices combined with interest rate increases will most likely squeeze buyers’ budgets, and sales will reorient to favor smaller units in lower-priced areas. Prices and sales could remain high, but less money may be spent in total.