Seller profit margins drop slightly in latest report

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Home prices continue to rise, but sellers’ profits could slow from recent highs. However, most sellers continue to see huge gains and profits remain at historic highs.

Profit margins on sales of median-priced single-family homes in the United States fell to 47.2% in the first quarter. This is the first quarterly decline since late 2019 and the largest in a decade, according to a new report from ATTOM Data Solutions. The first quarter profit margin was down from 51.6% in the fourth quarter of 2021.

That said, profit margins — the percentage change between median purchase and resale prices — often shrink during slower winter homebuying seasons. But the latest drop of more than four percentage points was larger than typically seen at this time of year, the researchers said.

The typical return on investment remains historically high. Gross profits are near record highs.

The sale of a typical single-family home nationwide recorded a median gross profit of $103,000 in the first quarter. That’s down from $107,187 in the fourth quarter of 2021. But the first-quarter median is significantly higher than the $75,001 profit a year earlier.

“Home prices simply cannot continue to rise as rapidly as they have in recent years,” says 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.

The largest quarterly declines in profit margins by metro area in Q1 were: Santa Barbara, CA (margin down from 72.9% in Q4 2021 to 45.8% in Q1 2022); Boise, Idaho (down 110.4% to 88.8%); Brownsville, Texas (down 54.3% to 38.1%); Saint-Louis (down from 37.6% to 23.9%)); and Des Moines, Iowa (down 48.1% to 35.2%).

The housing market showed other early signs of normalization. Contract signings fell in March, the fifth straight month of declining pending home sales, the National Association of REALTORS® reported Wednesday. Read more: Is a calmer market coming?

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