Home seller profits tumble, a ‘striking reversal’ from the past decade

Despite the decline in gains, many sellers had some hefty money-in-pocket profits

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Home sellers are “starting to take a significant hit” on their profits, as home prices drop from the peak reached last spring and the slide could continue for at least the next several months.

Double-digit declines in profits were reported in seven of eight metros in California during the first quarter compared to a year ago, the latest evidence that the housing market is sputtering. 

The Bay Area had the biggest annual drop in profit margins, with gains plummeting 32% in San Francisco and 28% in San Jose.  Profits fell at least 15% in San Diego, Los Angeles, Sacramento and Fresno, according to industry tracker ATTOM Data (see table, below).

BAY AREA HOME SELLERS ENDURE A HUGE DROP IN PROFITS

Blame higher mortgage rates that have caused many would-be sellers to hold off on making a move and more potential buyers priced out – or simply wait to see how the market plays during the next several months. Those factors have hurt prices from San Diego to Ukiah.

Home prices have declined during the past year, down about 7% compared to a year ago, according to the California Association of Realtors. But a limited supply of homes on the market has helped soften the price declines that many housing experts expected.

So, the median sales price – meaning half the homes sold for more, the other half for less – has also dropped. San Francisco and San Jose’s median sales prices tumbled 12% and 8%, respectively from a year ago (see table, below). The other metro regions had much-smaller declines, with Bakersfield eking out a 2% profit over the same period.

Now, a vast majority of home sellers are still enjoying huge profits, thanks to the pandemic-prompted runup in prices that started in spring 2020. San Jose-area home sellers enjoyed a $475,000 gain during the first quarter, the largest money-in-pocket profit in the nation – though it was down 28% from a year ago. San Francisco had the second-largest dollar gain for sellers at $316,000, off 33% from a year ago.

“Homeowners are starting to take a significant hit in the form of lost profits from the recent market slowdown,” says Rob Barber, CEO of ATTOM. “Nine months of varying price declines … have carved away almost a quarter of the profit margin sellers enjoyed in 2022. That’s a striking reversal of what we saw for a decade.”

The post continues following the table

Average profit for home sellers by metro

MetroProft Q1 2023% change from a year ago
Bakersfield$105,000-5%
Fresno$119,750-15.7%
Los Angeles$217,100-16.8%
Riverside$180,000-10%
Sacramento$159,750-15.9%
San Diego$242,750-19.1%
San Francisco$316,000-32.6%
San Jose$475,000-28%

Source: ATTOM Data

WORRIES ON WALL STREET COULD AFFECT YOUR STREET WHEN SELLING

Indeed, the median sales price is up significantly from the bottom about a decade ago. Riverside, Sacramento, San Francisco and San Jose’s median sales prices are up at least 200%.

But the short-term outlook for the housing market, especially during the often-busy spring home-buying season, remains uncertain with the higher mortgage rates and worries about a recession. Plus, while California added an estimated 8,700 jobs in March, dozens of large companies – from Google parent Alphabet to Meta Platforms, owner of Facebook – have been eliminating thousands of jobs during the past six months.

“Over the next few months, we can expect to gain more clarity regarding whether the current market stagnation is a short-term aberration or a more significant trend,” Barber says of the profit slide.

Median sales price declines in seven of eight metros

MetroMedian sales price Q1 2023Compared to a year agoCompared to post Recession peak priceCompared to post Recession bottom price
Bakersfield$320,750+2%-4%+192%
Fresno$365,000-5%-8%+181%
Los Angeles$848,000-1%-7%+165%
Riverside$525,000-1%-6%239%
Sacramento$516,500-7%-12%+204%
San Diego$777,500-3%-8%+180%
San Francisco$957,500-12%-23%+219%
San Jose$1.28 million-9%-15%+220%

Source: ATTOM Data


All-cash deals soar as mortgage rates spike 

Higher rates have dramatically affected affordability for many home shoppers, adding at least several hundred dollars to the monthly mortgage payment from a year ago.

Higher rates coupled with still near-record-high prices have closed the door on homeownership for many in California. Only one in five households could afford to buy the median-priced home during the first quarter – and that was based on a hefty 20% down payment, according to the California Association of Realtors.

But more buyers are getting around the higher mortgage rate issue by purchasing homes with cash, according to ATTOM Data.

At least one of every four buyers bought homes with cash in California during the first quarter, according to data from 12 metros surveyed. And in four high-priced regions – Los Angeles, Santa Barbara, Santa Cruz and Santa Rosa – the figure reached almost two of every four buyers.

All-cash deals have increased about 20% during the first quarter compared to a year ago, from a modest 11% bump in Riverside to a 30%-plus jump in San Francisco and San Jose, the most expensive housing markets in the Golden State.

Percentage of cash deals in Q1 2023 and how the figure compares to a year ago

Metro% of cash deals Q1 2023Increase compared to a year ago
California32.3%18%
Bakersfield32.1%24%
Fresno30.3%29%
Los Angeles37.3%16%
Riverside31.4%11%
Sacramento27.9%17%
San Diego27.8%12%
San Francisco28.0%34%
San Jose25.2%32%
Santa Barbara37.8%27%
Santa Cruz37.9%20%
Santa Rosa36.6%25%

Source: ATTOM Data