ATTOM: Home Profits Take Unusual 2Q Dip

ATTOM, Irvine, Calif., said profit margins for home sellers took an unusual dip in the second quarter but still were far above where were they were a year earlier.

The company’s second-quarter U.S. Home Sales Report reported the typical single-family home and condo sale across the United States during the second quarter generated a profit of $94,500, up from $90,000 in the first quarter and from $60,572 a year ago.

However, the profit margin on the median-priced house or condominium declined from 48.4 percent in the first quarter to 44.9 percent in the second quarter. While the latest margin remained 13 points above the 32 percent level recorded a year earlier, ATTOM said the drop-off marked a rare decline during a time of year that usually produces some of the best returns for sellers. The last time typical returns on investment dropped nationally during any second-quarter period was in 2008.

The report said the mixed picture of high, but reduced, profit margins came as the national median home price hit yet another record in the second quarter, reaching $305,000, up 11 percent from $275,200 in the first quarter and 22 percent from $250,000 a year ago. The annual price surge marked the largest since at least 2006 and was two to four times greater than increases seen just a year ago.

Todd Teta, chief product officer with ATTOM, said profits dropped in the second quarter because price gains – high as they were – were smaller than increases that recent sellers had been paying when they originally bought their homes. The gap between the latest price gains and earlier increases caused the dip in profit margins. He said the recent price and profit trends reflect a housing market that has continued its decade-long upward spiral, even as the coronavirus pandemic has damaged significant sectors of the U.S. economy since it hit early last year. He noted amid rock-bottom interest rates and worries about living in congested virus-prone parts of the country, a glut of buyers have been chasing a tight supply of homes for sale, raising demand and spiking prices.

Todd Teta

“Prices and profits from the second quarter painted yet another picture of a housing market in high gear – except for one thing: 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,” Teta said. “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.”

Other report findings:

–Typical profit margins rose from the a year ago in 158 (81 percent) of 195 metro areas around the United States with sufficient data to analyze. But margins increased from the first to the second quarter in just 109 (56 percent).

–Profit margins dropped, year over year, in just 37 of the 195 metro areas analyzed (19 percent) but declined quarterly in 86 (44 percent).

–The West continued to have the largest profit margins on typical home sales around the country, with 12 of the top 15 returns on investment in the second quarter from among the 195 metropolitan areas. They were led by Boise City, Idaho (124.3 percent return); Bellingham, Wash. (98 percent); Spokane, Wash. (84.2 percent); Salem, Ore. (84 percent) and Charlottesville, Va. (83.6 percent). Thirteen of the 20 smallest margins were in the South.

–Median home prices in the second quarter exceeded values from a year earlier in 97 percent of metropolitan statistical areas with enough data to analyze. Nationally, the median price of $305,000 in the second quarter was up 10.8 percent from $275,200 in the first quarter and 22 percent from $250,000 a year ago.

–Homeowners who sold in the second quarter had owned their homes an average of 6.3 years, down from 7.21 years in the first quarter 1 and from 7.61 years a year ago. The latest average tenure figure marked the shortest time between purchase and resale since first quarter 2013.

–Institutional investors nationwide accounted for 4.6 percent of all single-family house and condo purchases in the second quarter, the highest level since fourth quarter 2015. The latest figure was up from 3.2 percent in the first quarter and from 2 percent a year ago.

–Nationwide, all-cash purchases accounted for 34 percent of all single-family house and condo sales in the second quarter, the highest level since first quarter 2015. The second-quarter 2021 number was up from 31.7 percent in the first quarter and from 20.6 percent a year ago.

–Nationwide, buyers using FHA loans accounted for only 7.9 percent of all single-family home purchases in the second quarter, the lowest level since fourth quarter 2007. The latest figure was down from 9.1 percent in the previous quarter and from 12.9 percent a year earlier.