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Demand for distressed housing returning

Auction.com data on foreclosure sales rate and bids-per-asset at all-time highs

Auction.com‘s Distressed Market Outlook report for the fourth quarter shows a pick-up in demand for distressed housing, with a 24% increase in completed foreclosure auction volume in September. In addition, the foreclosure sales rate is at a seven-year high, and REO bids-per-asset are at an all-time high. 

The report notes that widespread foreclosure moratoria in place do not apply to legally vacant or abandoned homes. The company said data from its platform and other industry sources shows a growing backlog of mortgages that are in foreclosure or delinquent but not in a mortgage forbearance program.

Daren Blomquist, vice president of market economics at Auction.com, estimates that foreclosures will grow to more than 1.1 million by the second quarter of 2021.

Blomquist said much of the distressed housing was vacant prior to the onset of the COVID-19 pandemic, with a smaller number becoming vacant during the pandemic. 

“The longer homes sit in the foreclosure limbo created by the foreclosure moratoria, the greater the likelihood that they become vacant,” Blomquist told HousingWire. 

States with an above-average share of year-ago foreclosure volume in September included Colorado (92%), Oklahoma (86%), Kentucky (56%), Arkansas (54%) and Indiana (49%).

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States with a below-average share of year-ago foreclosure volume included New York, Oregon and New Jersey (all at 0%) along with Washington and Massachusetts (both at 5%).

The foreclosure sales rate increased to a seven-year high of 55.6% in September, with the average price-per-square-foot for third-party foreclosure auction sales dipped in the third quarter. 

Steve Price, senior vice president of trustee operations at Auction.com, said this is likely because of the shift to vacant or abandoned properties that often come with more deferred maintenance – but the average price relative to estimated full market value increased to a 6.5-year high in September.

“Buyers are showing up in force at the live foreclosure auctions, both in-person at the auction venues and now also virtually, thanks to the Remote Bid feature on the Auction.com mobile app,” Price said. “Where available, this feature allows buyers to participate in real time at the auction from just about anywhere.”

Per the report, increased competition for online REO auctions helped to push the average price-per-square-foot to a record high of $87 in July.

“Buyers can bid, buy and close on online REO auction properties without leaving their homes, making this inventory particularly attractive to real estate investors and other buyers in this season of social distancing,” said Walter Skrzynski, senior vice president of online auction sales at Auction.com.

Blomquist confirmed that “strong demand” for distressed properties is tied largely to the strength in the retail housing market, which in turn is tied largely to low mortgage rates

“We saw similar rebounds in demand for both vacant and occupied REOs a couple months after the pandemic declaration,” he said. “The demand for occupied surprised us a bit given the eviction moratorium, and that we require all buyers of occupied REO to sign a ‘Community Stabilization Pledge’ to abide by all eviction moratoria. 

“It’s apparent that investors are very bullish on the long-term strength of the real estate market and are willing to take on the extra risk that comes with buying an occupied property in the midst of widespread eviction moratoria.”

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