Generally speaking, the U.S. economy has been good for those who own a home and tough for those who want to buy one. A recent Attom Data Solutions report crystallized that notion.
Seller profit rose to $65,500 in 2019 on a typical home sale in the U.S., up from $58,100 in 2018 and $50,027 in 2017, according to the report. Profits, based on median purchase and resale prices, reached their highest level since 2006.
“Given the supply-and-demand and mortgage rate environment, we’re just expecting both prices and profits to continue to rise,” said Todd Teta, Attom Data’s chief product and technology officer. Teta spoke to Scotsman Guide about why profits reached a 13-year high, what could cause those profits to stop climbing, and what this data means for homebuyers and mortgage originators.
Seller profit rose to a 13-year high in 2019. Why is that?
What we’re seeing is that the [homeownership] tenure of the sellers also reached a peak of about eight years on a national median basis. If you think about that, that means somebody bought at the trough of the market in 2011 and are now selling their home at the peak.
What conditions would have to happen for home-price appreciation to plateau or decline?
We actually are starting to see that in some of the pricier markets. We think the biggest challenge is just affordability. A lot of the U.S. is crossing into the extremely unaffordable area. As a result, the buyer pool gets smaller when you talk about higher-end markets and higher-end homes.
If mortgage rates happen to tick up or there’s some other macroeconomic issue that appears, certainly the higher end of the market is going to continue to be challenged, and it could [spill] into some of the lower-end or mid-market areas as well.
On the whole, do you expect profits to increase?
What we’re likely going to see this year is the tenure of sellers will continue to rise. That’s both a function of just general ownership and people not moving as much. As you have more and more equity, you have more and more incentive to move out of the property. If your circumstances are right for it, either through downsizing or job change or relocation, you can become a seller. Equity is a big part of a psychology on that.
If you think about the reasons I said [the market] could be challenged — both on the rate side and macroeconomic side — we don’t see anything out there that indicates that’s going to happen. The Fed policy has been pretty aggressive about keeping rates low. We expect that it’s going to continue at least to the [2020 presidential] election. All the macroeconomic noise that has been in the market the last six months … just hasn’t seemed to impact the general economy or confidence.
Where are you seeing the largest increases in seller profits?
The biggest are in the lower-priced areas, so the Midwest and some parts of the South. Those are seeing the largest increase in profit and in pricing. The West Coast is where we’re seeing a bit of a slowdown. Even though large-dollar profits still are happening in the West, it’s just slowing.
Is this a concern for mortgage originators if wage growth isn’t keeping up?
To the extent that buyers pull out of the market, it would. Mortgage originators would see declining volumes, certainly, on the purchase side. With rates staying down, we think that’s offsetting some of the stagnant wage growth.
With prices accelerating, how is that affecting downpayments?
We are actually in the midst of trying to compile some very specific data on downpayments. What we are seeing was a higher propensity of [Federal Housing Administration] loans than in prior years. That’s really the only indicator we have right now. People are taking advantage of smaller downpayments (with those programs).
Do you have anything further to add?
We had thought in the first half of last year, before mortgage rates started coming back down, that it was going to turn a bit stronger toward a buyer’s market. That just didn’t happen. In fact, home-price appreciation in ‘19 was higher than in ‘18. It just continues to be a tough market if you’re buying, generally speaking, across the U.S., and really pronounced in those not-affordable areas.