Record Home Prices and Seller Profits
The median existing home price reached a record $426,900 in June, but are these high prices translating into profit for sellers? According to Attom Data’s 2nd-quarter 2024 U.S. Home Sales Report, though profits remain high, for many home sellers, they might be leveling off.
Based on the report, which includes REO sales data and transactions with institutional investors and cash buyers, the profit margin for home sellers remained at 56.8 percent during this time. This margin, or percentage difference between median purchase and resale prices, was the same as the previous quarter—up about one percentage point from Q1, and down one percentage point from the previous year. The average occupancy of homeowners who sold in the second quarter was 7.88 years.
This pushed the sellers’ raw profits to a high of $130,712, the highest since 2022, while returns peaked at $135,000. Despite this, overall profit margins didn’t improve much, as many buyers had originally purchased at high prices. According to Rob Barber, CEO of Attom, “The bottom-line profit-margin trend didn’t move much at all because soaring prices are far from a new thing. Even greater price improvements will be needed to kick margins up over the rest of the year.”
Rising Inventory and Market Trends
However, the housing market might be turning. Inventory has been inching up, and Realtor.com said the number of available homes swelled by 36.7% in June versus a year earlier. According to Redfin, homes are also spending more time on the market, with nearly 65% of listings unsold after 30 days on the market. This is a leading indicator for a buyer’s market, which would put downward pressure on prices and further squeeze seller profit margins in the future.
Regional Profit Trends
Profit margins varied by region. In 2Q 2024, 94 of the 160 metro statistical areas that were surveyed had increased profit margins as compared to 1Q, though 100 areas declined on a year-over-year basis.
The largest annual profit increases have occurred in areas where price increases have been less dramatic. For example, in the Northeast and Midwest, the biggest profit margin increase was seen in Syracuse, NY, jumping from 51.6 percent to 71 percent. In Rockford, IL, the margins increased from 54.8 percent to 74.5 percent. Even large markets such as Rochester, NY, reached 76 percent, and Cleveland, OH, posted an increase to 61 percent.
On the other hand, profit margins were reduced in areas where prices had risen precipitously and required buyers to pay a premium to enter the market. Hilo, HI, saw the margin fall from 80.5% to 45.3% year over year. In second place came Port St Lucie, FL, with a large decrease from 95% to 73.9%. Of the bigger metros, Honolulu, HI, dropped from 51.8% to 38.5%, while Austin, TX, saw its margins drop to 40.3%.
Although the profit margins of sellers remained stable on the whole, the returns from median-priced house sales are still above 50 percent in more than 66 percent of markets in the second quarter of 2024, down from a year ago but still remarkably high compared to five years ago.
All-cash sales accounted for 39.1 percent of all transactions, compared to 37.1 percent a year ago. High mortgage rates continue fueling cash deals. Institutional investors made up 6 percent of all buyers, compared to 6.6 percent a year ago, which is about one in 17 homes sold. Among states with the highest levels of institutional buying, Tennessee, Alabama, Oklahoma, and Georgia made the list.
Real estate investors should always monitor the movement of mortgage rates and inventory levels, as these two drivers will define future market conditions. While there are some regional differences, opportunistic real estate deals are feasible in most markets.
