{"id":165597,"date":"2024-01-29T15:44:10","date_gmt":"2024-01-29T22:44:10","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=165597"},"modified":"2024-02-19T04:45:57","modified_gmt":"2024-02-19T11:45:57","slug":"home-sale-profits-drop-for-first-time-in-decades","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/home-sale-profits-drop-for-first-time-in-decades","title":{"rendered":"Home Sale Profits Drop for First Time in Decades\u2014What Does It Mean, and Where Should Investors Put Their Money Now?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC4171514024\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">Much recent news in real estate has centered on home prices, which appear to still be rising. But what about the profits from home sales?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The latest&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.attomdata.com\/news\/most-recent\/attoms-year-end-2023-u-s-home-sales-report\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Year-End U.S. Home Sales Report<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;from ATTOM paints a less rosy picture of what\u2019s going on in the real estate market. In fact, it\u2019s showing that home sales profits dropped for the first time in a decade in 2023. So what are the figures, and what do they mean for investors?<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Numbers and a Bit of Context<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">First, the figures are by no means terrible. The ATTOM data shows that home sellers generated, on average, 56.5%&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-roi-in-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">return on investment (ROI)<\/span><\/a><span data-preserver-spaces=\"true\">, or $121,000 in profit on a typical home sale. This is down from 59.8%, or $122,600 in 2022.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1119\" height=\"635\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/Hisotrical-Home-Seller-Gains-Chart-2023.jpg\" alt=\"\" class=\"wp-image-165676\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/Hisotrical-Home-Seller-Gains-Chart-2023.jpg 1119w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/Hisotrical-Home-Seller-Gains-Chart-2023-300x170.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/Hisotrical-Home-Seller-Gains-Chart-2023-1024x581.jpg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/Hisotrical-Home-Seller-Gains-Chart-2023-768x436.jpg 768w\" sizes=\"auto, (max-width: 1119px) 100vw, 1119px\" \/><figcaption class=\"wp-element-caption\"><em>Historical Home Seller Gains and ROI (2008 &#8211; 2023) &#8211; <a href=\"https:\/\/www.attomdata.com\/\" data-type=\"link\" data-id=\"https:\/\/www.attomdata.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">ATTOM Data<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">Is this a concerning trajectory? The answer is not really if we put it in perspective of pre-pandemic home sales profit figures. ROIs of close to 60% are pretty extraordinary if we consider that the 2023 percentage was more than double what it had been just five years earlier.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If we look even further back to the dark post-2008 years, negative ROIs defined home sales between the financial crash and 2013. If you were selling a home in, say, 2011, you likely lost money.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">With this historical perspective in mind, the current dip in home sales profits really begins to seem pretty insignificant\u2014especially given the tough year the real estate market had following the by-now-infamous spike in&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-a-mortgage\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">mortgage<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;interest rates. Rob Barber, CEO at ATTOM, commented in a press release that 2023 was \u2018\u2018another very good year for home sellers across most of the United States.\u2019\u2019&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Having said that, Barber added, \u2018\u2018The market definitely softened amid modest price gains that weren\u2019t enough to push profits up higher after a long run of improvements.\u2018\u2019&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The home sales environment certainly isn\u2019t the same now as it was in 2021, when home sellers suddenly began seeing ROI figures of 50%, as opposed to 36% in 2020. The market was recovering steadily from the post-2008 slump, with profits increasing at predictable rates until the pandemic. And then they shot through the stratosphere.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Undoubtedly, this golden era of unprecedented profits in the real estate sector is over, at least for a while. Barber recommends tempering expectations in 2024, which is likely to bring very similar market behavior to 2023, adding:<\/span><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">\u2018\u2019In 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 that remain a serious financial burden for many households.\u201d<\/span><\/em><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In other words, it\u2019s still a great time to invest in real estate, with most of the U.S. offering investors the opportunity to make a substantial profit on a home sale. ATTOM\u2019s regional breakdown of the home sales profits data reveals that profit margins closely follow the regional market shifts that have been shaping U.S. real estate in the past two years.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">A Look at Regional Trends<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Unsurprisingly, many of the pandemic-era boom areas are now experiencing substantial home sales profit declines. These cities all experienced huge influxes of buyers during and immediately after the pandemic:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Austin, Texas (ROI down from 67.2% to 46.2%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Phoenix (down from 79.3% to 60.6%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Reno, Nevada (down from 80.6% to 64.5%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Salt Lake City (down from 68.3% to 52.2%)<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">These were affordable cities with strong economies that attracted professionals who wanted better value for their money when buying a house. Invariably, though, their popularity became their downfall. With huge demand came unsustainable home price increases, which are now manifesting as decreasing sales and decreasing profits.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">On the other hand, the Midwest and Northeast are two areas offering investors increasing profit margins despite everything the housing market went through in 2023. The biggest ROI increases were seen in these cities:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Scranton, Pennsylvania (ROI up from 75.1% to 89.6%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">South Bend, Indiana (up from 53.6% to 66.5%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Hartford, Connecticut (up from 53.2% to 65.8%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Rockford, Illinois (up from 48.8% to 57.8%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Rochester, New York (up from 53.8% to 62.8%)<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">The Midwestern cities of Cincinnati, Cleveland, and Milwaukee are also safe bets for investors, with all three seeing ROI gains in 2023.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The large cities with the biggest cities were San Francisco (ROI down from 92.7% to 79.5%) and Las Vegas (down from 74.3% to 61.8%). They\u2019re still great places to invest in, though, with very high profit margins\u2014just not the crazy high levels of 2022.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In fact, taking a final look at all the data is a reassuring experience: Even the cities with the largest declines are still offering opportunities to generate healthy profits from selling real estate.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In terms of profits in purely monetary terms rather than ROIs, the West Coast will still give you the largest profits, with San Jose emerging as the leader. Selling a home in this California city will generate, on average, a whopping $698,000. This figure, of course, reflects the overall high prices in the area, with an&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.zillow.com\/home-values\/33839\/san-jose-ca\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">average home value<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;of $1,322,389. By contrast, selling in the Midwestern market of Peoria, Illinois, will only generate $35,000 on average\u2014understandably so, given the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.redfin.com\/city\/15268\/IL\/Peoria\/housing-market\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">average home value<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;of $122,900.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Bottom Line<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">All these figures really demonstrate that the U.S. offers plenty of opportunities for investing in real estate for people with varying financial capabilities.&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-investment-analysis\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Research<\/span><\/a><span data-preserver-spaces=\"true\"> your local market, see what you can afford and what ROI you\u2019ll get there, and learn to add value for buyers. By following these steps, you will make a profit that will be in line with the current home prices and ROIs for the area.<\/span><\/p>\n\n\n\n<div class=\"wp-block-group has-slate-200-background-color has-background\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h2 class=\"wp-block-heading has-text-align-center has-theme-slate-dark-color has-text-color\">Take Your Market Research to the Next Level<\/h2>\n\n\n\n<div class=\"wp-block-media-text has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 34%\"><div class=\"wp-block-media-text__content\">\n<p class=\"has-theme-slate-dark-color has-text-color\">Need help finding the right market for your next investment? Dave Meyer created our brand new <strong>Picking a Market Worksheet<\/strong> to help investors like you identify and analyze the right locations for their next deals. <\/p>\n\n\n\n<p class=\"has-theme-slate-dark-color has-text-color\">Download our worksheet today for quick and easy analysis when researching your next market.&nbsp;<\/p>\n\n\n\n<div x-data=\"frictionlessSignupForm()\" class=\"button-account-type alignleft\">\n\n  \n\n  <!-- Guest Button -->\n      <template x-if=\"!$store.wp.isMember()\">              <button x-on:click=\"$store.wp.displaySignupPrompt()\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Sign Up to Download<\/button>\n          <\/template>  \n  <!-- Free Member Button -->\n      <template x-if=\"$store.wp.isMember() &#038;&#038; !$store.wp.isPaidMember()\">              <a href=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Picking-a-Market-Worksheet_v2.pdf\" target=\"_blank\" x-on:click=\"window.analytics.track(&#039;Blog | Market Intelligence | Picking a Market Worksheet&#039;, {\n            referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/home-sale-profits-drop-for-first-time-in-decades&#039;,\n            account_type: &#039;free&#039;,\n          });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Download the Worksheet<\/a>\n          <\/template>  \n  <!-- Pro Member Button -->\n      <template x-if=\"$store.wp.isPaidMember()\">      <a href=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Picking-a-Market-Worksheet_v2.pdf\" target=\"_blank\" x-on:click=\"window.analytics.track(&#039;Blog | Market Intelligence | Picking a Market Worksheet&#039;, {\n          referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/home-sale-profits-drop-for-first-time-in-decades&#039;,\n          account_type: &#039;pro&#039;,\n        });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Download the Worksheet<\/a>\n    <\/template>  \n  <!-- Frictionless Popup -->\n  <\/div>\n<\/div><figure class=\"wp-block-media-text__media\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"1024\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/Picking-A-Market-1024x1024.jpg\" alt=\"picking a market worksheet\" class=\"wp-image-165579 size-full\" title=\"\"><\/figure><\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>New data from ATTOM shows that the average ROI on home sales dropped last year, albeit slightly. Is this a new trend? Or just a ripple? And where should investors put their money now?<\/p>\n","protected":false},"author":613618,"featured_media":164987,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8,7119],"tags":[],"class_list":["post-165597","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/165597","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613618"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=165597"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/165597\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/164987"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=165597"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=165597"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=165597"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}