Seller Profits

Sellers make record profits as homeownership tenure lengthens

The profit a homeowner made on selling their home hit a 12-year high in 2018, according to the real estate data company ATTOM Data Solutions. Part of this trend was attributed to homeowners staying in their homes for longer before selling.

The typical owner sold their property for $61,000 more than they purchased it in 2018, up from $50,000 in 2017 and $39,500 in 2016. The average sale represented a return on investment of 32.6 percent, increasing from 27 percent in 2017 and 21.9 percent in 2016.

Both the sales profit and return on investment were at their highest points since 2006, when the average home seller had a profit of $68,000 – a return on investment of 43.3 percent.

The typical seller lost money on their home purchase between 2008 and 2012, with the low point occurring in 2011 when the average homeowner sold their property for $45,000 less than their original purchase price. This marked a drop of 23.1 percent in value on average.

"The economy is still going strong and home loan rates remain historically low," said Todd Teta, chief product officer at ATTOM Data Solutions. "But there are potential clouds on the horizon. The effects of last year's tax cuts are wearing off as limits on homeowner tax deductions are in place and mortgage rates are ticking up ever so slowly, so this could dampen the potential for home price gains in 2019."

The median price for a home sold in the United States during 2018 hit a record high of $248,000, increasing 5.5 percent from 2017. Annual home price appreciation was down slightly from 7.1 percent in 2017.

The highest returns on investment came from West Coast cities, which have seen rapid price growth in recent years. In San Jose, Calif., the typical homeowner earned more than twice what they had purchased the property for – 108.8 percent. The average return on investment was 78.6 percent in San Francisco and 70.7 percent in Seattle.

Among the 127 metropolitan statistical areas with a population of at least 200,000 included in the study, the largest proportional increase in home prices occurred in Mobile, Ala. Home prices were up 21 percent from 2017 in this market. The average home price was up 19 percent in Flint, Mich. and 18.9 percent in San Jose, Calif.

Homeownership tenure was at a record high at the end of 2018. People who sold a home during the fourth quarter of the year had owned their home for an average of 8.3 years, up from 8.13 years in the third quarter and 7.95 years in the fourth quarter of 2017. This tenure was the longest since ATTOM Data Solutions began collecting data in the first quarter of 2000.

In 16 of the 108 metro areas analyzed for homeownership tenure, sellers had spent less time in their residence than sellers in the fourth quarter of 2017. The market of Vallejo-Fairfield, Calif. had the most notable difference, with homeownership tenure falling by 5 percent.

A total of 12.4 percent of home sales in the U.S. in 2018 were distressed properties, such as foreclosures and short sales. This share was down from 14 percent in 2017 and a peak of 38.6 percent in 2011.

Distressed property sales rose by 13 percent in Kansas and Louisiana. They were also up by 2 percent in Kentucky and 1 percent in Colorado, Indiana, Maine, and West Virginia.

Among 209 metro areas with a population of at least 200,000, the highest share of distressed property sales was 37.2 percent in Atlantic City, N.J. This was followed by 25.2 percent in Montgomery, Ala. and 23.8 percent in Trenton, N.J.

In the 53 metro areas with a population of at least 1 million, Philadelphia had the highest share of distressed sales at 20.7 percent. This was followed by 19.9 percent in Baltimore and 19.4 percent in Cleveland.

A total of 27.8 percent of home sales were made to buyers who purchased without financing. This share of all-cash sales was unchanged from the previous year and down from the 2011 peak of 38.4 percent, but still significantly higher than the pre-recession average of 18.7 percent between 2000 and 2007.

Institutional investors, or entities purchasing at least 10 residential properties in a calendar year, made up 2.7 percent of all single-family home and condominium sales in 2018. This share dropped for the fifth consecutive year, falling from 3 percent in 2017.

Investor activity was strongest in Montgomery, where 9.6 percent of the year's sales went to institutional investors. In other markets with sufficient data and a population of at least 200,000, institutional investors accounted for 8.1 percent of sales in Memphis, Tenn. and 7.6 percent of sales in Columbia, S.C.

Federal Housing Administration loans, which allow buyers to purchase a home with a low down payment, made up 10.6 percent of the year's sales. This was down from 13.6 percent in 2017 and at its lowest share since 2007.

Among metro areas with a population of 200,000 or greater, six of the 10 markets with the highest share of FHA transactions were in Texas. These included McAllen (26.3 percent), El Paso (25.3 percent), and Amarillo (23 percent).