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Profit Margins on Homes Dive in Q1

Releasing its first quarter 2022 Home Sales Report, ATTOM Data found that profits on median-priced home sales have dropped for the for the first time since 2019 which may indicate the recent housing boom may be slowing. 

Profit margins in the first quarter dropped from 51.6% to 47.2%, a 4.4 percentage point decline, the first drop since 2019 and the largest drop since 2011. Return on investment also remained high, topping 37.5%, much higher than the 29.4% that was seen during the same period in 2019, before the pandemic hit. 

So what does this drop translate to? The typical single-family home sale across the country generated a gross first-quarter profit of $103,000, down from $107,187 in the fourth quarter of last year, although still well above $75,001 a year earlier. 

"Home prices simply can't continue to go up as rapidly as they have for the past few years," said Rick Sharga, Executive Vice President of Market Intelligence for ATTOM. "The combination of higher prices, rising mortgage rates, and the highest rates of inflation in 40 years may be pricing some prospective buyers out of the market, which means we may begin to see lower sales numbers. Ultimately, as affordability worsens, price appreciation should slow down, and we may even see modest price corrections in some markets." 

The lower profits come at a time that saw home prices increase just 1.7%, from $315,000 in the fourth quarter of 2021 to $320,500 in the first quarter of this year. This marks the ninth quarter in a row in which housing set a record and is now up 16.5% from the first quarter of 2021. 

Home sales also lagged during the first quarter: sales fell from 1.2 million to 1.1 million. ATTOM notes that the lower sales, higher pricing, and profit trends “point to the possibility of a calmer period in a housing market that has largely roared ahead over the past two years.” 

Profit margins decline quarterly in over 40% of metro areas around the U.S.
The typical profit margins, or the percent change between median purchase price and the resale price, fell quarter-to-quarter in 71 of the 170 metro areas monitored by ATTOM, or 42%. This trend emerged even as investment returns remained up annually in 152 (89%) of those metros. Metro 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 metro areas analyzed (58%). 

Largest profit margins again in West; smallest in South and Midwest
The Western portion of the country continued to have the largest profit margins on typical single-family home sales around the country, with 13 of the top 25 returns on investment in the first quarter of 2022 from among the top 170 metropolitan areas. 

The highest profit margins were in Hilo, Hawaii (96.4% return); 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 South and Midwest 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 up quarterly in just half the nation
In 89 of the 170 metropolitan areas included in the report (52%), median home prices exceeded values form the prior quarter even though they remained up annually 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 biggest quarterly increases in median home prices during the first quarter of 2022 were in Honolulu, Hawaii (up 7.9%); Port St. Lucie, Florida (up 7.7%); Lakeland, Florida (up 7.6%); Austin, Texas (up 7.6%) and Cape Coral-Fort Myers, Florida (up 7.5%). 

The largest quarterly decreases in median prices during the first quarter of 2022 were 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 entire report, including methodology, click here. 

About Author: Kyle G. Horst

Kyle Horst
Kyle G. Horst is a reporter for DS News and MReport. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at [email protected]
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