In spite of a spate of gloomy predictions about the housing market and dampened confidence in the economy, new data shows that profit margins for home sales across the U.S. have risen at a pace not seen in over a decade.
Gains on home sales in the second quarter of 2022 increased by 55.5%, according to a recently released report by ATTOM, a curator of nationwide real estate data, making it the largest quarterly gain since at least 2008. While profit margins routinely climb during the spring home-buying season, the second quarter spike of more than seven percentage points is undoubtedly an unusual upswing.
“Home sellers in the second quarter continued to benefit from the rapid growth in home price appreciation the country has experienced over the past few years,” said Rick Sharga, executive vice president of market intelligence at ATTOM, in a release. “While price growth may slow down as higher mortgage rates dampen demand from prospective homebuyers, home sellers should continue to profit from the record $27 trillion in homeowner equity in today’s market.”
Gross profits also hit new highs in the second quarter, following a slight dip in the early months of the year. The typical single-family home and condo sale in the U.S. generated a gross second-quarter profit of $123,869, up 19% from the first quarter of 2022 and 38% from a year earlier.
Key findings:
- Profit margins increased from the first quarter of 2022 to the second quarter of 2022 in 162 of the 183 metro areas around the U.S. with sufficient data to analyze. They were up annually in 174 of those metros.
- Florida, one of the hottest real estate markets in the country, logged the largest annual increases in profit margins. The metro areas of Fort Myers, Naples and Ocala ranked first through third, respectively.
- Margins decreased in only 20 of the 183 metros analyzed by ATTOM and annually in only nine. The largest decreases came in Salem, Oregon, followed by Hilo, Hawaii.
- Boise, Idaho, saw the third-highest annual decreases in profit margins, signaling a reversal in fortune from early on in the pandemic when Boise’s real estate market boomed as remote workers flocked in from all over the country.
- Median home prices in the second quarter exceeded values from the prior quarter in 181 of the 183 metropolitan statistical areas with enough data to analyze. Four out of five metros with the largest gains are located in Florida.
- Homeowners who sold in the second quarter had owned their homes for an average of 5.87 years, which remains a historically low rate of tenure.
- All-cash purchases accounted for over a third of all single-family home and condo sales in the second quarter of 2022, the highest level since the first quarter of 2014. Conversely, FHA-financed purchases came in at the lowest level in almost 15 years.
- Institutional investment in real estate crept up by 1.8% from the first quarter of 2022, with the largest percentage of sales occurring in Arizona, Georgia and Nevada.
The takeaway:
“On the heels of a lackluster first quarter of 2022 that suggested possible weakness in the nation’s long-running housing market boom, the latest typical profit margin was up from 48.3% in the first quarter of 2022 and 42.9% in the second quarter of 2021. It was more than 20 points above the 32% figure from the second quarter of 2020.”
“The second quarter profit figures showed how strong the nation’s housing market prices remained despite rising economic uncertainty and home mortgage rates that have surged this year. Average mortgage rates have nearly doubled from a year ago, reaching almost 6% for a 30-year fixed rate loan, making affordability a challenge for many potential homebuyers. These higher rates, coupled with rising home prices, the highest U.S. inflation rates in 40 years, and soaring food and fuel prices are all headwinds threatening to slow down what has been a white-hot housing market over the past few years. Still, home prices and seller profits surged anew in the second quarter, after a first quarter that saw a rare dip in investment returns.”
Brendan Rascius is RISMedia’s associate editor. Email him your story ideas at brascius@rismedia.com.
