Reduced Profits Sting Sellers


To home sellers who agonizingly watched the prices of their abodes recede recently, leaving a nasty gash in profits, there’s little to say but “ouch.”

Want a touch of solace? Apparently, the waters are rippling with plenty of others in the same predicament.

A first quarter 2023 U.S. Home Sales Report released by ATTOM showed that on median-priced single-family home and condo sales across the country, profit margins dipped to 44.2%, sagging from 48.7% in the fourth quarter of last year.

A silver lining is that the typical investment return stayed relatively high. In fact, it was nearly double where it was four years ago. From the peak of 56.1% in the second quarter last year, the margin was off by 12 points.

Attom’s findings were no surprise to Hakan Wildcat, mortgage area manager at Guardian Mortgage in Lawrence, Kansas.

“I think there’s an obvious correlation between declining profits and the rise of mortgage rates. Potential buyers who were originally prequalified at 3.5% but were unable to find a home then had to have updated prequalification at rates closer to 6%-7%,” Wildcat told The Mortgage Note.

“This aggressive hike in rates either priced consumers out of the market entirely, or at the very least lowered the amount of home they could qualify for.”

In 68% of the 137 metro statistical areas around the U.S., typical profits margins remained where they were — or dropped — from the fourth quarter of last year to the first quarter of this one, according to ATTOM.

The metro areas of Akron, Ohio, felt the biggest quarterly decreases in typical profit margins, receding from 66.7% in the fourth quarter of 2022 to 47.8% in this year’s first quarter.

In Stockton, California, profit margins went from 76.7% to 59.4%.

In Louisville, Kentucky, profit margins dropped from 48.6% to 32%.

Conversely, the largest quarterly upticks were rung up in Trenton, New Jersey, where the margin went up from 43.6% in last year’s fourth quarter to 78.6% in this year’s first quarter.

Scranton, Pennsylvania, ratcheted up from 63.3% to 87.5%.

Lake Havasu City in Arizona jumped to 82.8% from 63.6%.

Wildcat said these trends could continue depending on what happens with mortgage rates and if the Federal Reserve’s rate hikes have an impact on inflation.

“We, as consumers, will have to wait and see,” Wildcat said.

So what is in store for the rest of 2023?

Rick Sharga, president and CEO of CJ Patrick Company in California, recently told The Mortgage Note that this spring is “unlikely to be a banner period for home sales. Extremely low inventory of homes for sale coupled with poor affordability are likely to keep sales activity fairly weak, even though seasonal trends usually see sales and prices increase during the spring and summer months.”

According to data from the National Association of Realtors, pending home sales decreased in March for the first time since November 2022. All four regions in the country saw pending home sales retreat compared to one year ago.

Nadia Evangelou, senior economist and director of real estate research at NAR, told The Mortgage Note that “while mortgage rates have a direct impact on the mortgage payment, home prices continue to decline in expensive markets.”

As for Q3 and Q4, according to a May 19 press release from Fannie Mae, the economy is still expected to enter a recession but the overall strength of the housing market will keep it modest.

“Housing remains exhibit number one for why we expect the recession to be modest. It continues to outperform our expectations, and we expect that its relative strength will help kickstart the economy into expanding again in 2024,” Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a statement.

Read More Articles:

As Rocket’s Jay Farner Retires His Impact Is Remembered

Republicans Continue To Fight Mortgage Fee Changes

Learn More About The Construction Lending Market With CEO Brian Mingham