After years of record harvests, profits for home sellers have begun to decline.
According to a recent ATTOM report. The real estate data company found that sellers were earning 54.6% more than they originally paid for their properties, but that was down from the 57.6% they had pocketed in the previous quarter.
The report was based on home bills of sale, foreclosure filings and loan data.
The declines were due to price slippage for the first time in nearly three years, according to ATTOM. Rising mortgage interest rates drives up monthly housing payments so much that many buyers can’t afford to spend that much on a home if they can afford it. Rates have more than doubled from the low 3% range at the start of the year to nearly 7%, according to Freddie Mac. Rates hammered the housing market, prompting many sellers to cut prices or put their properties up for sale a little cheaper and up fears of a new real estate bubble.
“Rapidly rising mortgage rates not only caused home sales to decline, but also began to impact home prices,” Rick Sharga, ATTOM’s executive vice president of market intelligence, said in a statement. “With interest rates the highest in over 20 years, homebuyers are facing serious affordability issues. … It is very likely that house prices will continue to weaken in many markets over the next few months.
Sellers stayed home an average of 5.98 years, according to the report.
The biggest declines in profits were in the Claremont, NH, metro area, where sellers fell from 72.8% in the second quarter of the year to 52.4% in the third quarter. It was followed by San Francisco, where profits fell from 85.1% to 65.4%, and Prescott, AZ, where they fell from 86.3% to 70.8%. (Metros include the main city and surrounding towns, suburbs and smaller urban areas.)
Profits rose the most in the Macon, GA, metro, rising from 44.7% to 82.4%; Rockford, Illinois, from 29.9% to 41.8%; and Davenport, IA, from 29.2% to 41.8%.
Cash buyers, many of whom were investors, still accounted for more than a third of all sales, accounting for about 35.7% of buyers in the third quarter. This was slightly down from 36% in the previous quarter.
Institutional investors, which are the big iBuyers, hedge funds, pension funds and other financial powerhouses, bought around 1 in 15 properties in the third quarter of the year. Their purchases fell slightly compared to the same period a year earlier.
“If the Federal Reserve’s goal was to slow the housing market, it succeeded spectacularly,” Sharga said. “The market has gone from double-digit annual home price appreciation to less than 3% and down quarter-over-quarter prices. But the impact of 6% and 7% mortgage rates means many homes are still out of reach for potential buyers, even with prices falling slightly.