This Week in Real Estate

February 1, 2021

U.S. home seller profits are soaring, we take a look at the 2020 gains. Plus, the Fed plots a stable path ahead for mortgage rates, but will they remain low? And, there’s been a significant shift in interest for newly-built homes, what the latest Housing Trend Report is saying. We take a closer look This Week in Real Estate.

U.S. Home Seller Profits Soar in 2020 as Prices Set New Records. ATTOM Data Solutions released its 2020 U.S. Home Sales Report Thursday, which shows that home sellers nationwide in 2020 realized a home-price gain of $68,843 on the typical sale, up from $53,700 in 2019 and $48,500 two years ago. The $68,843 profit on median priced single-family homes and condos represented a 34.7 percent return on investment compared to the original purchase price, up from 29.4 percent last year and 27.2 percent in 2018, to the highest average home-seller return on investment since 2006. Both raw profits and ROI have improved nationwide for nine straight years. And last year’s gain in ROI – up more than five percentage points – marked the largest annual increase since 2017. “Last year marked a unique year in the history of home prices and profits in the United States. A once-in-a-century health crisis tore through much of the nation’s economy but seemed to have the opposite effect on the housing market,” said Todd Teta, chief product officer at ATTOM Data Solutions. “Demand remained strong as people who could afford the space and relative safety of single-family homes did just that, aided by super-low mortgage rates and a strong stock market. But they went after a narrowing supply of housing stock, so prices soared and so did seller profits. While it’s unclear how long that will last, in the annals of history, there will be few years recorded as better for sellers and more challenging for buyers.” The top 10 metro areas with the highest ROIs on typical home sales were all in the West, led by in San Jose, CA (87.3 percent return on investments); Seattle, WA (72.1 percent); Salem, OR (69.6 percent); Spokane, WA (69.2 percent) and San Francisco, CA (68.2 percent). 

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The Fed Plots a Slow, Stable Path on Mortgage Rates. The Federal Open Market Committee left future economic policies virtually unchanged at its Wednesday meeting, indicating that short-term mortgage rates will stay low for years to come. As for asset purchases, the FOMC also made clear that the committee is waiting for “substantial further progress” on economic recovery before they begin to taper their bond purchases of $120 billion a month. This reinforces the statements of Fed Vice Chairman Richard Clarida earlier this month. Overall, Federal Reserve purchases have helped to drive mortgage rates and other loan interest rates to the lowest level on record by boosting competition for bonds, which compresses yields. 

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* A Significant Shift in Interest for Newly-Built Homes. According to NAHB’s latest Housing Trends Report, 15% of adults were considering a home purchase in the fourth quarter of 2020, up from 11% a year earlier. Further analysis reveals a significant shift in interest for newly-built homes during this period among prospective buyers. In the final quarter of 2020, 41% of buyers were looking for a newly-built home, more than twice the 19% share a year earlier. On the other hand, the share interested in an existing home declined from 40% to 30%, while the share indifferent to either type of home fell from 41% to 29%. When broken down by generation, results show that 50% of Millennial and 48% of Gen X buyers are looking to buy a new home. In contrast, 50% of Boomers and 38% of Gen Z buyers would prefer to buy an existing home. Across regions, a majority of buyers in the Northeast (53%) and West (51%) would prefer a new home, far larger shares than in the South (33%) or the Midwest (24%). In fact, in the Midwest, a strong 46% plurality would prefer an existing home.

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