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The median existing-home price hit a record high of $426,900 in June, but are those high prices translating into profits for sellers? Attom Data released its second-quarter 2024 U.S. Home Sales Report, showing that while profits are still high, they may have stalled out for many home sellers.
The report, which looks at REO sales and all sales to institutional investors and cash buyers, found that home sellers earned a 55.8% profit margin. The profit margin is the percent difference between median purchase and resale prices. This number was essentially flat from the previous quarter, rising about one percentage point from the first quarter but down one point from a year ago. Homeowners who sold in the second quarter owned their homes for an average of 7.88 years.
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The rise in home prices did raise sellers’ raw profits to $130,712, the highest level seen since 2022, when returns on home prices peaked at $135,000. Raw profits didn’t increase overall profit margins partly because many buyers originally bought in at a high price. “The bottom-line profit-margin trend didn’t move much at all because soaring prices are far from a new thing,” said Rob Barber, chief executive officer for Attom. “Even greater price improvements will be needed to kick margins up over the rest of the year.”
Whether we get those higher prices remains to be seen as the housing market appears to be in the midst of a shift. Inventory of homes for sale has been slowly rising. Realtor.com reported that home inventory was up 36.7% year over year in June. Homes have been staying on the market longer. Redfin found that nearly 65% of homes listed for sale now sit on the market for 30 days or more. These data points could signal a shift to a market that favors buyers over sellers. If that turns out to be the case, it could eventually lower prices and drag on the profit margins of future sellers.
Profits Rise In The Midwest, Northeast
Not all markets are created equal. Profit margins rose from the first quarter of 2024 to the second quarter in 94 out of the 160 metropolitan statistical areas reviewed but were still down annually in 100 of those areas.
The biggest annual improvements in returns on investment came in towns where prices have not risen as dramatically, particularly in the Northeast and Midwest markets. The top town where profits increased was Syracuse, NY, where the margin rose from 51.6% to 71%. It was followed by Rockford, IL, where profits rose from 54.8% to 74.5%. Larger markets that saw an increase included Rochester, NY, where the profit margin rose to 76%, and Cleveland, OH, where the profit margin increased to 61%.
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Markets where profit margins decreased were in some of the areas that have seen sharp price appreciation, meaning that buyers had spent more to get into those markets. Profit margins decreased in Hilo, HI, where the margin dropped from 80.5% to 45.3% year over year, and in Port St. Lucie, FL, where the profit margin tumbled from 95% to 73.9%. Among larger metros, the biggest losers were in Honolulu, HI, where margins went from 51.8% down to 38.5%, and Austin, TX, where margins fell to 40.3%.
Even though profit margins didn’t move much overall, returns on investment for median-priced home sales during the second quarter of 2024 were still about 50% in over 66% of the markets surveyed. That was down from last year but still elevated compared to five years ago.
All-cash purchases were 39.1% of all sales, up from 37.1% a year ago. High mortgage rates mean that borrowing costs are still high, which may be prompting an elevated number of cash sales. Institutional investors represented 6% of all buyers, down from 6.6% a year ago. That works out to around one out of every 17 homes for sale. States with a high level of institutional buying included Tennessee, Alabama, Oklahoma, and Georgia.
While every market will respond differently, real estate investors will want to keep track of mortgage rate changes and inventory rates. There is still ample room for profiting from real estate in many markets.
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This article Where The Profits Are: Real Estate Investors Can Make Big Returns In These Markets originally appeared on Benzinga.com
