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Home prices are still rising, but sellers’ profits may be slowing from their recent highs. However, most sellers continue to see huge gains and profits still remain at historical highs.
The profit margins on median-priced single-family home sales across the U.S. fell to 47.2% in the first quarter. It was the first quarterly decline since late 2019 and the largest in a decade, according to a new report released by ATTOM Data Solutions. The first-quarter profit margin was down from 51.6% in the fourth quarter of 2021.
That said, profit margins—the percent change between median purchase and resale prices—often decrease during the slower winter homebuying seasons. But the latest dip of more than four percentage points was larger than typically seen at that time of year, researchers say.
The typical return on investment remains historically high. Gross profits are near record highs.
The typical single-family home sale nationwide had a median gross profit of $103,000 in the first quarter. That is down from $107,187 in the fourth quarter of 2021. But the first-quarter median is significantly above the profit of $75,001 from a year earlier.
“Home prices simply can’t continue to go up as rapidly as they have for the past few years,” says 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.”
The largest quarterly decreases in profit margins by metro area in the first quarter were: Santa Barbara, Calif. (margin down from 72.9% in the fourth quarter of 2021 to 45.8% in the first quarter of 2022); Boise, Idaho (down from 110.4% to 88.8%); Brownsville, Texas (down from 54.3% to 38.1%); St. Louis (down from 37.6% to 23.9%); and Des Moines, Iowa (down from 48.1% to 35.2%).
The housing market has been showing other early signs of normalizing. Contract signings dropped in March, the fifth consecutive month that pending home sales have fallen, the National Association of REALTORS® reported Wednesday. Read more: Is a Calmer Market Coming?