Release of its first quarter of 2022 Home Sales Report, ATTOM data found that earnings on median-priced home sales fell for the first time since 2019, which may indicate that the recent housing boom may be slowing.
Profit margins in the first quarter fell from 51.6% to 47.2%, a decline of 4.4 percentage points, the first decline since 2019 and the largest decline since 2011. Return on investment also remained high , exceeding 37.5%, well above the 29.4% that was observed during the same period in 2019, before the pandemic hit.
So what is this drop? The typical sale of a single-family home across the country generated gross profit of $103,000 in the first quarter, compared to $107,187 in the fourth quarter of last year, although it was still well above $75,001. one year earlier.
“Home prices simply cannot continue to rise as rapidly as they have in recent years,” said Rick Sharga, Executive Vice President of Market Intelligence for ATTOM. “The combination of higher prices, rising mortgage rates and the highest inflation rates in 40 years could exclude some potential buyers from the market, which means we could start to see weaker sales numbers. Ultimately, as affordability deteriorates, price appreciation should slow, and we may even see modest price corrections in some markets.”
The drop in profits comes at a time when home prices rose just 1.7%, from $315,000 in the fourth quarter of 2021 to $320,500 in the first quarter of this year. This is the ninth straight quarter in which housing has set a record and is now up 16.5% from the first quarter of 2021.
Home sales also lagged in the first quarter: sales fell from 1.2 million to 1.1 million. ATTOM notes that the falling sales, rising prices and earnings trends “indicate the possibility of a calmer period in a housing market that has grown significantly over the past two years.”
Profit margins shrink quarterly in more than 40% of U.S. metro areas
Typical profit margins, or the percentage change between median purchase price and resale price, fell quarter over quarter in 71 of the 170 metro areas monitored by ATTOM, or 42%. This trend emerged even as investment returns continued to rise each year in 152 (89%) of these cities. Metropolitan areas were included in the report if they had at least 1,000 single-family home sales in the first quarter of 2022 and a population of at least 200,000. However, profit margins increased quarterly in 99 of the 170 metropolitan areas analyzed (58%).
Largest profit margins again in the West; smallest in the South and Midwest
The western part of the country continued to have the largest profit margins on sales of typical single-family homes across the country, with 13 of the top 25 ROIs in the first quarter of 2022 among the top 170 metro areas.
The highest profit margins were in Hilo, Hawaii (96.4% yield); Scranton, Pennsylvania (91.2%); Boise, Idaho (88.8%); San Jose, California (86.1%) and Spokane, Washington (85%).
Twenty-one of the 25 smallest margins were in the southern and midwestern regions of the country. The lowest were in Lafayette, Louisiana (16.6%); Shreveport, Louisiana (17.1%); Columbus, Georgia (19.2%); Little Rock, Arkansas (21.3%) and Lakeland, Florida (22.9%).
Prices are rising quarterly in only half of the country
In 89 of the 170 metro areas included in the report (52%), median home prices exceeded previous quarter values, although they remained up year on year in 165 of those markets. Nationally, the median price of $320,500 in the first quarter was up from $315,000 in the fourth quarter of 2021 and $275,000 in the first quarter of last year.
The largest quarterly increases in median home prices during the first quarter of 2022 were in Honolulu, Hawaii (+7.9%); Port St. Lucie, Florida (+7.7%); Lakeland, Florida (+7.6%); Austin, Texas (+7.6%) and Cape Coral-Fort Myers, Florida (+7.5%).
The largest quarterly declines in median prices during the first quarter of 2022 occurred in Macon, Georgia (down 15.4%); Kalamazoo, Michigan (down 10.9%); Detroit, Michigan (down 10%); York, Pennsylvania (down 9.5%) and Des Moines, Iowa (down 9.3%).
To view the full report, including methodology, Click here.