Profit Margins on U.S. Home Sales Plummet to Lowest Level in Two Years
The latest data from ATTOM’s first-quarter 2023 U.S. Home Sales Report reveals a significant decline in profit margins on median-priced single-family homes and condos across the nation. Amid stagnant or decreasing home prices in many regions, profit margins dropped to 44.2 percent.
This decline marks the third consecutive quarterly decrease nationwide, resulting in the lowest investment return since mid-2021. The drop comes alongside a modest 1 percent quarterly increase in the national median home price, reaching $321,135, while values decreased in nearly three-quarters of major housing markets across the country.
Although the typical investment return remains relatively high compared to four years ago, it has decreased by 12 points from its peak of 56.1 percent in the second quarter of last year.
Rob Barber, CEO of ATTOM, commented on the trend, stating, “Homeowners are beginning to experience a significant impact in the form of reduced profits due to the recent market slowdown. Nearly a quarter of the profit margin enjoyed by sellers in early 2022 has been eroded over the past nine months, representing a remarkable reversal from the trends observed over the past decade.”
Barber further suggested that the upcoming peak buying season of 2023 could potentially lead to increased profits, fueled by favorable mortgage rates and other market factors. However, the near future will provide more clarity on whether the current market stagnation is a temporary deviation or a more enduring trend.
The recent decline in profits and prices reflects a housing market that has stalled since the middle of last year following a decade of sustained growth. The nationwide median home price has fallen by 7 percent from its peak in the second quarter of last year, impacting profit margins.
This slowdown occurred amidst a backdrop of rising mortgage rates, soaring consumer price inflation, and fluctuations in the stock market, all of which reduced homebuyers’ purchasing power and subdued demand, despite limited housing inventory.
As the 2023 home-buying season unfolds, the market outlook remains uncertain. While there have been slight declines in mortgage and inflation rates in recent months, economists predict further interest rate hikes and the possibility of a recession, adding to the market’s complexity.
Profit margins in the United States remain stagnant or decrease in a significant portion of metro areas.
In the first quarter of 2023, typical profit margins, representing the percentage difference between median purchase and resale prices, remained unchanged or decreased in 93 out of 137 metropolitan statistical areas (MSAs) across the country, accounting for 68 percent of the analyzed regions. Moreover, these margins were flat or declining in 123 MSAs, constituting 90 percent of the metros compared to the second quarter of the previous year when returns peaked nationwide.
Among the metro areas experiencing the most substantial quarterly declines in typical profit margins were Akron, OH (decreased from 66.7 percent to 47.8 percent), Stockton, CA (decreased from 76.7 percent to 59.4 percent), Louisville, KY (decreased from 48.6 percent to 32 percent), Prescott, AZ (decreased from 73.3 percent to 58.1 percent), and Buffalo, NY (decreased from 66.2 percent to 51.5 percent).
In larger metro areas with populations exceeding 1 million, notable declines were observed in St. Louis, MO (decreased from 33.7 percent to 23.6 percent), San Francisco, CA (decreased from 58.9 percent to 49.1 percent), and Salt Lake City, UT (decreased from 53.6 percent to 44.5 percent).
Conversely, profit margins increased quarterly in only 44 out of the 137 metro areas analyzed (32 percent). Notable increases were observed in Trenton, NJ (increased from 43.6 percent to 78.6 percent), Scranton, PA (increased from 63.3 percent to 87.5 percent), Lake Havasu City, AZ (increased from 63.6 percent to 82.8 percent), Atlantic City, NJ (increased from 33.2 percent to 48.5 percent), and Reading, PA (increased from 53.9 percent to 68.8 percent).
Among larger metro areas with populations exceeding 1 million, significant increases were noted in Pittsburgh, PA (increased from 47.8 percent to 53.1 percent), Memphis, TN (increased from 46.3 percent to 51.1 percent), Richmond, VA (increased from 52.1 percent to 55.6 percent), Indianapolis, IN (increased from 46.7 percent to 50 percent), and Grand Rapids, MI (increased from 64.4 percent to 67.1 percent).
The majority of the nation experiences stagnant or declining raw profits.
In the first quarter of 2023, profits derived from median-priced home sales, calculated in raw dollar amounts, either remained unchanged or decreased in 100 out of the total metro areas analyzed, representing 73 percent of the regions covered in this report.
Among areas with populations exceeding 1 million, the most substantial quarterly declines in raw profits were observed in St. Louis, MO (declined by 30 percent), Louisville, KY (declined by 29 percent), Birmingham, AL (declined by 28 percent), New Orleans, LA (declined by 24 percent), and Buffalo, NY (declined by 22 percent).
San Jose, CA, topped the list for the highest raw profits on median-priced sales in the first quarter of 2023, with a profit of $475,000. Following closely were San Francisco, CA ($316,000), Naples, FL ($255,750), San Diego, CA ($242,750), and Seattle, WA ($236,000).
The majority of metro areas in the United States witness stagnant or declining home prices.
In the first quarter of 2023, median home prices either decreased or remained unchanged compared to the previous quarter in 104 out of 139 metro areas analyzed, constituting 75 percent of the regions studied. Despite this trend, home prices were still higher on an annual basis in 102 of those metros, representing 73 percent of the total. Nationally, the median home price in the first quarter reached $321,135, marking a 1 percent increase from $318,000 in the fourth quarter of 2022 and a 1.6 percent increase from $316,000 in the first quarter of the previous year.
The most significant decreases in median home prices from the fourth quarter of 2022 to the first quarter of 2023 were observed in Toledo, OH (down 13.7 percent); Trenton, NJ (down 13.3 percent); Pittsburgh, PA (down 11.1 percent); Detroit, MI (down 9.5 percent); and San Francisco, CA (down 8.8 percent).
Apart from Pittsburgh, Detroit, and San Francisco, the largest declines in median prices during the first quarter of 2023 in metro areas with populations exceeding 1 million were recorded in Buffalo, NY (down 8.7 percent) and Baltimore, MD (down 7.3 percent).
Only six out of the 139 metro areas in the report experienced new highs in home prices during the first quarter of 2023.
The most notable increases in median prices from the fourth quarter of 2022 to the first quarter of 2023 were observed in Ogden, UT (up 7.2 percent); Naples, FL (up 6 percent); Savannah, GA (up 5.8 percent); Fort Myers, FL (up 5 percent); and Crestview-Fort Walton Beach, FL (up 4.9 percent).
Among metro areas with populations exceeding 1 million, the most significant quarterly increases during the first quarter of 2023 were recorded in Virginia Beach, VA (up 2.3 percent); San Diego, CA (up 1.6 percent); Miami, FL (up 1.2 percent); Riverside, CA (up 1 percent); and Richmond, VA (up 0.6 percent).
Bank-owned foreclosures are on a slight upward trend but remain at historically low levels.
In the first quarter of 2023, home sales resulting from foreclosures by banks and other lenders constituted only 1.7 percent, or one of every 59 single-family home and condo sales in the United States. This figure marked a modest increase from 1.3 percent in the preceding quarter of 2022 and from 1.2 percent in the same period of the previous year.
However, it still represents a minuscule fraction of the peak of 30 percent witnessed in 2009 during the fallout of the Great Recession.
Among metropolitan statistical areas with adequate data, regions where sales of Real Estate Owned (REO) properties constituted the largest portion of all sales in the first quarter of 2023 included Peoria, IL (13.6 percent, or one in seven sales); Flint, MI (11.9 percent); Lansing, MI (7.3 percent); St. Louis, MO (7.2 percent); and Kalamazoo, MI (6.6 percent).
Cash purchases surge to decade-high levels
In the first quarter of 2023, cash transactions reached a notable milestone, constituting 39.3 percent of all single-family home and condo sales nationwide. This marks the highest level recorded since the first quarter of 2013. The recent surge in cash purchases reflects a notable increase from 37.9 percent in the previous quarter of 2022 and from 36.9 percent in the corresponding period of the previous year.
Among metropolitan areas with sufficient data on cash sales, several regions stood out for their high prevalence of cash transactions in the first quarter of 2023. These included Amsterdam, NY (75.9 percent of all sales); Claremont-Lebanon, NH (69.9 percent); Seneca, SC (69.3 percent); Hudson, NY (68.1 percent); and Palatka, FL (65.2 percent).
Conversely, certain areas exhibited a lower prevalence of cash sales during the same period. Vallejo, CA (21.4 percent); Seattle, WA (22.5 percent); Spokane, WA (22.6 percent); Washington, DC (22.6 percent); and Kennewick, WA (22.9 percent) were among the regions where cash sales represented the smallest share of all transactions in the first quarter of 2023.
Decline in Institutional Investment Activity
During the first quarter of 2023, institutional investors played a reduced role in the housing market, comprising 5.4 percent of all single-family home and condo purchases nationwide. This marked a decline from 6.6 percent in the fourth quarter of 2022 and 6.1 percent in the first quarter of 2022.
Among states with sufficient data for analysis, Georgia led with the highest percentage of sales to institutional investors at 8.4 percent of all transactions, followed by Tennessee (7.7 percent), Alabama (7.5 percent), Texas (7.5 percent), and Arizona (7.3 percent).
Conversely, several states reported lower levels of sales to institutional investors in the first quarter of 2023. Massachusetts recorded the smallest share at 2.6 percent of all sales, trailed by Wisconsin (3 percent), Louisiana (3.2 percent), New York (3.3 percent), and Delaware (3.6 percent).
FHA-financed purchases hold steady
Nationwide, buyers using Federal Housing Administration (FHA) loans comprised 8.3 percent of all single-family home and condo purchases in the first quarter of 2023 (one of every 12). That was unchanged from the fourth quarter of 2022 and up from 7.3 percent a year earlier.
Among metropolitan areas with sufficient FHA-buyer data, those with the highest levels of sales to FHA purchasers in the first quarter of 2023 included Bakersfield, CA (21 percent of all sales); Lakeland, FL (20.1 percent); Dover, DE (19 percent); Pueblo, CO (18.5 percent) and Modesto, CA (18.1 percent).
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