Many Americans still can’t afford to buy a home as prices remain elevated and rates cool slowly, but sellers are already experiencing the unavoidable next step of price declines: falling profits.
Profits on home sales fell last year for the first time since 2011 despite price gains, according to new data from ATTOM. Home sellers made a $121,000 profit on the typical sale in 2023, a 56.5% return on investment.
This is a historically strong number – more than double what it was five years ago – but both gross profits and profit margins were down from 2022.
At the same time, the national median home price increased at the slowest pace in 12 years.
ATTOM noted that the data is the result of 2023’s rollercoaster market, which saw spikes in the spring but very little activity in the final months of the year.
“Last year certainly stood out as another very good year for home sellers across most of the United States… But the market definitely softened amid modest price gains that weren’t enough to push profits up higher after a long run of improvements,” said Rob Barber, CEO at ATTOM.
“In 2024, the stage seems set for more small changes in prices as well as seller gains, given the competing forces of interest rates that have headed back down in recent months and home supplies that remain tight, but homeownership costs remain a serious financial burden for many households.”
The West and South saw the highest ROIs in 2023, continuing a pattern sparked by their post-pandemic popularity.
Prices are expected to moderate in 2024 as new inventory hits the market, discouraging competition on a handful of houses.
“We expect home sales to be weak in the first half of next year, but activity should pick up in the second half and further into 2025, and that’s primarily because affordability will improve,” Ellen Zentner, a chief U.S. economist for Morgan Stanley, said on a podcast.
“Home prices should see modest declines as growth and inventory offsets the increase in demand.”
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