Home Sales ROI Takes ‘Unusual Dip’

In a blistering sellers' market, one area has cooled considerably—home sale profits. Still above last year's level, homeowners' returns on investments "took an unusual dip" in Q2 of 2021, said the ATTOM staff, which just published their U.S. Home Sales Report.

"Profit margins dropped in the second quarter, which is very unusual for any Springtime period because that’s when the housing market is usually hottest or close to it,” said Todd Teta, Chief Product Officer at ATTOM.

The analysts say it's been about 13 years since the average profit margin dropped nationally during any second-quarter period.

The report showed the typical single-family home and condo sale across the United States during the second quarter of this year generated a profit of $94,500. That was up from $90,000 in the Q1 and from $60,572 in the second quarter of last year. By region, about 80% of the metros studied for the report showed an annual increase in investment margin.

But the ROI related to the seller's purchase price on a median-priced house or condominium declined from 48.4% in the first quarter of this year to 44.9% in the second quarter. While the latest margin remained 13 points above the 32% level recorded a year earlier, the drop-off marked a rare decline during a time of year that usually produces some of the best returns for sellers, ATTOM reported.

At a regional level, investment profit rose in about 56% of the large metro areas in ATTOM's study. In the first quarter, about 98% of metros reported rising ROI.

What these high but reduced profit margins mean for the greater market is uncertain, but it is something real estate pundits plan to monitor in coming months.

“While it may just be a momentary thing in today’s volatile market, it’s definitely something to keep an eye on in case it’s a sign that the market is finally cooling or giving in to some of the economic forces connected to the virus pandemic.”

Cities where sellers are seeing the largest (YoY) gains include Boise City, Idaho; Charlottesville, Virginia; Scranton, Pennsylvania; Claremont-Lebanon, New Hampshire; and Bellingham, Washington.

Some other takeaways from ATTOM's Q2 report included:

• Homeownership tenure fell to an eight-year low this quarter—6.3 years this Q2, which is down from 7.21 in Q1 of 2021 and from 7.61 years in the second quarter of 2020 and the shortest time between purchase and resale since the first quarter of 2013.
• Institutional investment hit a six-year high, accounting for 4.6% of all single-family house and condo purchases, the highest level since Q4 2015.
• Cash sales also reached a six-year high, accounting for 34% of all single-family house and condo sales, the highest level since the first quarter of 2015.
• FHA-financed loans made up just 7.9% of all single-family home purchases, the lowest level since the fourth quarter of 2007.

Find the full report including further regional breakdowns and methodology at ATTOMdata.com.