Cash offers are up, profits are down — but some metros are thriving
While these trends can bring challenges, understanding local market dynamics can help buyers and sellers be more competitive.
- All-cash offers have reached the highest level in a decade, adding to the challenges faced by the average buyer.
- Profit margins for home sellers are down, but they remain above pre-pandemic levels.
- Homeowners are not staying in their homes as long as they used to, with tenureship hitting a 12-year low.
As real estate agents help clients navigate the market, a new report offers insight into what buyers and sellers can expect.
The real estate data company ATTOM released its first-quarter Home Sales Report today, which touched on some trends that have emerged in the first months of the year.
Cash is king
All-cash sales are happening — lots of them. Across the U.S., 39.3% of home and condominium sales were done with cash, the highest percentage since the first quarter of 2013, according to the report.
Metro areas seeing the highest levels of cash sales in the first quarter were in the East, including Amsterdam, New York (75.9%); Claremont, New Hampshire (69.9%); and Seneca, South Carolina (69.3%). The areas with the lowest levels of all-cash sales were in the West, where prices are generally higher, and include Vallejo, California (21.6%); Seattle (22.5%); and Spokane, Washington (22.6%).
Understanding where cash sales are occurring can help buyers prepare a competitive offer, even if they aren't able to purchase their home in cash.
Lawrence Yun, chief economist at the National Association of Realtors, noted that elevated mortgage interest rates have worked in favor of those who don't need to take out a home loan.
"Cash buyers are unaffected by fluctuations in mortgage rates and were able to take advantage of lower prices in some areas," Yun said earlier this year in an article for Realtor Magazine.
If mortgage rates were to decline, the share of cash sales should go down in the short-term, said Rob Barber, CEO at ATTOM. However, long-term effects are harder to predict. In recent years, cash sales have remained strong even as interest rates went down to 4%.
"So, while it's logical to think cash transactions will fall back if rates decline again this year, the historical picture is far from crystal clear," Barber said.
Time to talk to sellers about lower profits
Sellers may not want to hear it, but profit margins are down. During the first quarter, the profit margin for a median-priced house or condo was 44.2%. That's down from 48.7% in the fourth quarter and is the third straight quarterly decrease nationwide, according to the report.
While the median home price rose 1% over the previous quarter, home values went down in almost three-quarters of major housing markets, and profit margins have shrunk since peaking at 56.1% last spring, said Rob Barber, CEO at ATTOM.
Still, profit margins are almost double compared to four years ago, so most sellers remain in a strong position.
"It is possible that the upcoming peak buying season of 2023 could lead to increased profits, owing to favorable mortgage rates and other factors," Barber said. "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."
Areas with shrinking profit margins were scattered across the U.S., with the biggest quarterly drops in Akron, Ohio, which saw a decline of nearly 20 points; Stockton, California; Louisville, Kentucky; and Prescott, Arizona.
But nearly a third of metros saw increased profit margins. The biggest jumps came in Trenton, New Jersey (up from 43.6% in the fourth quarter of 2022 to 78.6% in the first quarter of 2023); Scranton, Pennsylvania; and Lake Havasu City, Arizona.
Homeowners are selling sooner
With inventory tight in most parts of the country, buyers and their agents would like to see more sellers enter the market. And that could happen, because homeownership tenure has decreased. Those who sold a home in the first quarter had owned it an average of 5.59 years, which is the lowest duration since mid-2011, according to the report.
Homeowners appear to be moving most quickly in Lakeland, Florida (1.22 years), Memphis (2.92 years) and Cleveland (3.83 years).
The places with the longest average tenures included two Hawaiian cities — Honolulu (8.21 years) and Kahului (7.93 years) — and Manchester, New Hampshire (8.17 years).
Barber said the recent declines in average tenure began in 2020 and were probably influenced by the pandemic, which led to higher rates of migration, and the boom in the housing market.
"Those two forces — the desire to make a healthy profit combined with a surge in demand — likely have combined to shorten the average time owners have stayed in their homes before selling," Barber said.