Despite a string of bleak housing market forecasts and weakened confidence in the economy, new data shows profit margins on U.S. home sales have risen at a rate not seen in more than a decade.
Gains on home sales in the second quarter of 2022 rose 55.5%, according to a recently released report by ATTOM, a curator of national real estate data, making it the largest quarterly gain since at least 2008. While profit margins are steadily rising during the spring home-buying season, the spike of more than seven percentage points in the second quarter is undoubtedly an unusual rally.
“Second-quarter home sellers continued to benefit from the rapid growth in home price appreciation that the country has seen over the past several years,” said Rick Sharga, executive vice president of intelligence at market at ATTOM, in a press release. “Although price growth may slow as higher mortgage rates dampen demand from potential buyers, home sellers should continue to benefit from the record $27 trillion in homeowners’ equity in the current market.”
Gross profits also reached new highs in the second quarter, after a slight decline in the first months of the year. The typical sale of single-family homes and condos in the United States generated gross profit of $123,869 in the second quarter, up 19% from the first quarter of 2022 and 38% from a year earlier.
- Profit margins increased from Q1 2022 to Q2 2022 in 162 of 183 U.S. metro areas with enough data to analyze. They were up annually in 174 of these metros.
- Florida, one of the fastest growing real estate markets in the country, saw the largest annual increases in profit margins. The metropolitan areas of Fort Myers, Naples and Ocala rank first and third respectively.
- Margins fell in only 20 of the 183 metros analyzed by ATTOM and annually in only nine. The largest declines occurred in Salem, Oregon, followed by Hilo, Hawaii.
- Boise, Idaho saw the third-largest annual decline in profit margins, signaling a reversal of fortunes early in the pandemic when Boise’s real estate market boomed as remote workers poured in from across the country.
- Median home prices in the second quarter exceeded values from the previous quarter in 181 of 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 home for an average of 5.87 years, which remains a historically low occupancy rate.
- Cash purchases accounted for more than 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-funded purchases arrived to the lowest level in almost 15 years. years.
- Institutional investment in real estate increased 1.8% from the first quarter of 2022, with the highest percentage of sales taking place in Arizona, Georgia and Nevada.
“On the heels of a lackluster first quarter of 2022 that suggested possible weakness in the country’s long-running housing market boom, typical last profit margin was 48.3% in the first quarter of 2022 and 42.9% in the second. quarter of 2021. This was more than 20 points above the 32% figure in the second quarter of 2020.”
“The second quarter earnings numbers showed how strong domestic housing market prices have remained despite growing economic uncertainty and mortgage rates that have jumped this year. Average mortgage rates have almost doubled over the past year, reaching almost 6% for a 30-year fixed rate loan, making affordability difficult for many potential buyers. These higher rates, coupled with rising house prices, the highest U.S. inflation rates in 40 years, and soaring food and fuel prices, are all headwinds that threaten to slow this which has been a white-hot real estate market for the past few years. Still, home prices and sellers’ profits jumped again in the second quarter, following a first quarter that saw a rare drop in investment returns.
Brendan Rascius is the Associate Editor of RISMedia. Email him your story ideas at [email protected].