Industry Data

NORTHEASTERN HOUSING MARKETS REMAIN MOST AT RISK OF ECONOMIC IMPACT FROM CORONAVIRUS PANDEMIC

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ATTOM Data Solutions released its third-quarter 2020 Special Report spotlighting county-level housing markets around the United States that are vulnerable to the impact of the Coronavirus pandemic. The report shows that pockets of the Northeast and Mid-Atlantic regions were most at risk in the third quarter—with clusters in the New York City, Baltimore, Philadelphia and Washington, D.C. areas—while the West and now Midwest are less vulnerable. The report reveals that Connecticut, New York, New Jersey, Pennsylvania, Maryland, and Delaware had 32 of the 50 counties most vulnerable to the economic impact of the pandemic in the third quarter. They included five suburban counties in the New York City metropolitan area, four around Washington, D.C., four around Philadelphia, PA, four around Baltimore, MD, and seven of Connecticut’s eight counties. The only four western counties among the top 50 were in northern California and Hawaii, while Illinois had the only six in the Midwest. Another eight were loosely scattered across five southern states—Florida, Louisiana, North Carolina, Texas, and Virginia. Third quarter trends generally continued from those found in the first and second quarters of 2020, but with different concentrations around several major metropolitan areas. The number of counties among the top 50 most at-risk was down from 11 to five in the New York City area, and from eight to three in the Chicago, IL, area, but up from two to four in the Baltimore region. Markets are considered more or less at risk based on the percentage of homes currently facing possible foreclosure, the portion of homes with mortgage balances that exceed the estimated property value, and the percentage of local wages required to pay for major home ownership expenses. The conclusions are drawn from an analysis of the most recent home affordability index, equity and foreclosure reports prepared by ATTOM. Rankings are based on a combination of those three categories in 487 counties around the United States with sufficient data to analyze. Counties were ranked in each category, from lowest to highest, with the overall conclusion based on a combination of the three ranks. The findings come as the national housing market has largely staved off the effect of the virus pandemic. While home values have dipped in some areas of the nation, counties generally have seen prices rise 7 percent to 15 percent since the third quarter of 2019. But the market remains exposed due to high unemployment and other damage that has spread through the United States economy as the virus has surged throughout the country this year. “The U.S. housing market continues to show remarkable resilience during a time of widespread economic trouble and high unemployment stemming from the virus pandemic. But amid continued price gains, pockets around the country face greater risk of a fall, especially in and around the Northeast,” said Todd Teta, chief product officer with ATTOM Data Solutions. “There is much uncertainty ahead, especially if another virus wave hits. We will continue to closely monitor home prices and sale patterns to see if, how and where the pandemic starts rattling local markets.” Most vulnerable counties clustered around New York City; Baltimore; Philadelphia; Washington, D.C. and Chicago. Twenty of the 50 U.S. counties most at-risk in the third quarter of 2020 from housing-market troubles connected to the pandemic (among the 487 counties with sufficient data) were in the metropolitan statistical areas around New York, NY; Philadelphia, PA; Baltimore, MD; Washington, D.C., and Chicago, IL. They included five in the New York City suburbs (Bergen, Essex, Passaic and Sussex counties in New Jersey, along with Orange County, NY) and four around Philadelphia (Burlington, Camden and Gloucester counties in New Jersey, plus Bucks County, PA). Another four counties found most at risk are in the Baltimore metro area: Anne Arundel, Baltimore, Carroll, and Howard counties. The three around Chicago are Lake, McHenry, and Will counties. Seven of Connecticut’s eight counties also are in the top 50, including Fairfield, Litchfield, Middlesex, New Haven, New London, Tolland, and Windham counties. The only western counties among the top 50 most at risk from problems connected to the Coronavirus outbreak in the third quarter of 2020 were Humboldt County (Eureka), CA; Butte County (Chico), CA; Shasta County (Redding), CA, and Hawaii County, HI. Florida also had three counties in the top 50: Charlotte County (outside Fort Myers), Flagler County (outside Daytona Beach) and Highlands County (Sebring). Higher levels of unaffordable housing, underwater mortgages and foreclosure activity in most-at-risk counties. Major home ownership costs (mortgage, property taxes and insurance) consumed more than 30 percent of average local wages in 35 of the 50 counties that were most vulnerable to market problems connected to the virus pandemic in the third quarter of 2020. The highest percentages were in Bergen County, NJ (outside New York City) (51 percent of the average local wage required for major ownership costs); Passaic County, NJ (outside New York City) (50 percent); Comal County, TX (outside San Antonio) (48 percent); Carroll County, MD (outside Baltimore) (46 percent); and Hawaii County, HI (46 percent). Among all counties in the report, major expenses on the median-priced home typically consumed 32 percent of the average local wage. At least 15 percent of mortgages were underwater in the second quarter of 2020 (the latest data available on owners owing more than their properties are worth) in 37 of the 50 most at-risk counties. Nationwide, 13 percent of mortgages fell into that category. Those with the highest underwater rates were Cumberland County (Vineland), NJ (34 percent); Saint Clair County, IL (outside St. Louis, MO) (33 percent); Lackawanna County (Scranton), PA (31 percent); Monroe County, PA (outside Wilkes-Barre) (30 percent) and Madison County, IL (outside St. Louis, MO) (29 percent). More than one in 2,500 residential properties faced a foreclosure action in the second quarter of 2020 (the latest available data) in 36 of the 50 most at-risk counties. Nationwide, about one in 4,449 homes were in that position. (Foreclosure actions have dropped about 80 percent this year amid a foreclosure moratorium on

Zombie Foreclosures on the Upswing

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More U.S. homes fall into vacant zombie foreclosure realm in third quarter of 2020. ATTOM Data Solutions’ third quarter 2020 Vacant Property and Zombie Foreclosure Report revealed that 1,570,265 residential properties in the U.S. are vacant. That’s 1.6% of all homes. The report analyzespublicly recorded real estate data collected by ATTOM Data Solutions, including foreclosure status, equity and owner-occupancy status, matched against monthly updated vacancy data. The third quarter analysis shows that about 216,000 homes are in the process of foreclosure, with about 7,960, or 3.7%, sitting empty as so-called “zombie foreclosures.” The count of properties in the process of foreclosure (215,886) in third quarter 2020 is down 16% from the second quarter of 2020 (258,024). But the percentage of those properties that have been abandoned as zombie foreclosures is up from 3% in the second quarter of 2020. Despite the increase, the 7,961 zombie foreclosure properties continue to represent a small portion of the nation’s stock of 99.4 million residential properties—just one of every 12,500 homes. The third quarter 2020 data shows a drop in the number of homes at some point in the foreclosure process, but an increase in the level sitting vacant at a time when the federal government is trying to shield the housing market from an economic slide stemming from the coronavirus pandemic. Among the government’s key measures is a temporary prohibition against lenders foreclosing on government-backed mortgages. The ban, which is set to expire Aug. 31, 2020 and affects about 70% of U.S. homes, was enacted under the CARES Act Congress passed in March. It was later extended to help borrowers who have lost jobs or other sources of income during the pandemic. “Abandoned homes in foreclosure remain little more than a spot on the radar screen in most parts of the United States, posing few, if any, problems from neighborhood to neighborhood. But the latest numbers do throw a small potential red flag into the air, given the increase in the percentage of zombie foreclosures,” said Todd Teta, chief product officer with ATTOM Data Solutions. Highest Zombie Foreclosures Rates Owners nationwide have vacated a total of 7,961 residential properties facing possible foreclosure in third quarter 2020. That figure comprises 3.7%, or one in 27, of all properties in the foreclosure process. Those numbers are up from 3%, or one in 34, in second quarter 2020, and 3.2%, or one in 32, in third quarter 2019. States where zombie foreclosure rates exceed the national percentage are clustered in the Midwest and South (Kansas, 15%, or one in seven, properties in the foreclosure process; Missouri,11.2%, or one in nine; Georgia, 11%, or one in nine; Kentucky, 10.7%, or one in nine; and Tennessee, 10.3%, or one in 10). States where the rates fall below the national level are mainly in the Northeast and West. Those states include Utah (1.1%, or one in 87 properties in the foreclosure process), Idaho (1.2%, or one in 84), New Jersey (1.6%, or one in 62), Colorado (1.8%, or one in 56) and California (2%, or one in 50). Increases in All But One State Zombie-foreclosure rates rose from the second to the third quarter of 2020 in every state except Hawaii. Rates also decreased in the District of Columbia. States with the largest increases included Kansas (up from 7.4% to 15% of all properties in the foreclosure process), Missouri (up from 4% to 11.2%), Georgia (up from 3.9% to 11%), Kentucky (up from 3.9% to 10.7%) and Nebraska (up from 4% to 10.3%). “It appears that an increased number of vacant foreclosure properties may be an unintended consequence of the foreclosure moratoria put in place by federal, state and local governments,” said Rick Sharga, executive vice president at RealtyTrac. “Vacant properties can contribute to neighborhood blight and become safety hazards, especially during a pandemic. So, the sooner these abandoned properties can be processed and sold to homebuyers or investors, the better it will be for communities and neighborhoods across the country.” Northeast and Midwest Lead New York continues to have the highest actual number of zombie properties (2,136), followed by Florida (1,028), Illinois (971), Ohio (887) and New Jersey (356). California leads in the West, with 265. Oklahoma leads the South, with 133. Highest Ratios Despite increases in the rates of zombie foreclosures in third quarter 2020, those properties represent just one in every 12,486 residential properties of all kinds in the U.S., including those not facing possible bank takeover. States with the highest ratios are concentrated in the Northeast and Midwest, including New York (one in 1,934 properties), Illinois (one in 4,077), Ohio (one in 4,328), Florida (one in 6,747) and New Jersey (one in 7,476). States with the lowest ratios include Idaho (one in 188,805 properties), Utah (one in 98,766), Arkansas (one in 78,267), Texas (one in 70,746) and Virginia (one in 69,686). High-level Findings Based on third quarter data, the report revealed the following: Among 158 metropolitan areas with at least 100,000 residential properties in third quarter 2020, the highest zombie-foreclosure rates include Peoria, Illinois (16.4% of properties in the foreclosure process); Wichita, Kansas (15.3%); Kansas City, Missouri (13.4%); Omaha, Nebraska (12.7%); and Cleveland, Ohio (12.6%). Among major metro areas with at least 500,000 residential properties, the lowest zombie foreclosure rates are in Austin, Texas (no zombie foreclosure properties); San Francisco, California (0.7%); Philadelphia, Pennsylvania (1.6%); Los Angeles, California (1.7%) and Charlotte, North Carolina (1.8%). The top zombie-foreclosure rates in counties with at least 500 properties in foreclosure include Cuyahoga County (Cleveland), Ohio (14.1%); Broome County (Binghamton), New York (10.9%); Onondaga County (Syracuse), New York (10%); Pinellas County (Clearwater), Florida (8.5%) and Summit County (Akron), Ohio (7.8%). Among ZIP codes with at least 100 properties in foreclosure, those where the zombie foreclosure rate exceeds 5% remain concentrated in New York, Florida, Ohio and Illinois. Those ZIP codes with the top percentages include 44108, 44112 and 44105, all in Cleveland, Ohio; 61604 in Peoria, Illinois; and 13601 in Watertown, New York. The highest levels of vacant

COVID-19: A Game Changer for Multifamily

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The COVID-19 pandemic ended years of healthy multifamily fundamentals. Will the industry’s pain be short-lived or the start of a new trend that is less favorable for the sector? After nearly a decade of solid growth, multifamily asking rents dropped 0.4% nationally in April and May, with twice as many metros seeing rents decline (71) as increase (35), according to a study of 107 U.S. metros by Yardi Matrix. Metros with the most rent growth since the pandemic started—led by Portland, Maine (1.7% in April and May); Mobile, Ala. (1.3%); and Memphis (1.3%)—are primarily smaller markets, many in the Southeast and Midwest. Primary and secondary metros, with concentrations of urban properties in coastal centers, felt the most impact. Asking rents fell at least 0.6% in all primary markets, with the biggest decreases in Boston (-1.5%), Los Angeles (-1.4%) and San Francisco (-1.0%). Demand has weakened, and renters are increasingly looking for more inexpensive stock. Newer luxury units with the highest rents have fared worse than more moderately priced units. Rents of luxury Lifestyle units nationally decreased by 1.2%, compared to a decline of only 0.5% for working-class Renter-by-Necessity units. New units coming online are taking longer to lease up, prompting owners of more expensive units to offer concessions or lower rents to attract tenants. Whatever pain the industry feels over the short term, however, pales in importance to the potential long-term impact. Economic growth is now negative, and the shape of the recovery remains unclear. More important, the pandemic is spurring changes in working conditions and social trends that will impact housing demand for years to come. Rent Growth Cycle Ends Multifamily had a long run of strong performance—asking rents grew by 26% nationally between January 2015 and the first quarter of 2020—until the coronavirus hit. Since mid-March, more than 40 million Americans have lost jobs, at least temporarily, and the unemployment rate skyrocketed to 14%. The layoffs were disproportionately concentrated among hourly low-wage workers, who tend to be renters. Suddenly, property owners’ primary concerns were collecting rent payments and maintaining occupancy. Many are rolling over leases of existing tenants with no increases. Nationally, asking rents dropped 0.4% since then (all rent data cited is from Yardi Matrix). Energy-dependent Midland-Odessa, Texas (-8.6%) saw the biggest immediate decrease, but major markets were among the hardest hit. The 13 metros that experienced rent drops of 1.3% or more include San Diego (-1.8%), San Jose and Nashville (-1.7%), Boston (-1.5%), Los Angeles and Denver (-1.4%), and Austin and Seattle (-1.3%). Some metros did see rents increase in April and May, mostly smaller or tertiary markets. Of the 18 metros that saw rent growth of 0.6% or more during that time, none are among the top 20 largest metros by population and half are in the Midwest. Those metros include Omaha, Cleveland, Columbus and Toledo (0.8%), and Grand Rapids, St. Louis, Wichita and South Bend (0.6%). Reasons for the metro-level differences are varied. The initial impact occurred in large states with major travel hubs such as New York, New Jersey, California and Illinois that were the first to impose shelter-in-place orders that closed businesses. Coastal metros with high rents were affected, as property owners found it difficult to raise rents given the uncertainty about employment, calls for rent forbearance and eviction prohibitions. Some affected metros have concentrations in major industries such as energy or entertainment—Las Vegas and Houston, for example. Also disproportionately hit were some metros with a large amount of new inventory coming online, such as Nashville and Denver. Issues related to urbanization and social distancing also loom large. With offices, restaurants, entertainment venues and schools closed, and residents ordered to stay six feet from others, the social advantages that led to the growth of walkable downtowns turned into drawbacks. Many city dwellers, especially those with children, decided they preferred to quarantine with relatives or friends in the suburbs, move to vacation or second homes, or in some cases make permanent moves outside of urban centers. Asking rents are likely to drop more throughout the year as demand wanes. The economic shock from layoffs and furloughs will impact household formation, as some young adults will live with family or friends rather than rent on their own. Immigration into the United States has dropped steadily in recent years, falling 595,000 in 2019, the lowest level in 30 years and 43% less than 2016, according to the U.S. Census Bureau. Immigrants overwhelmingly rent rather than own, which cuts demand in large urban areas where they tend to migrate. Changing Work, Lifestyle Preferences The question for the industry is whether these negative trendlines are a short-term blip that recovers quickly after COVID-19 is under control or if the pandemic will create trends that are unfavorable for multifamily over the long term. One key issue is whether social distancing will reverse the decades-long trend toward urbanization. Cities have benefited from trends that include growth of knowledge-based jobs. More than 70% of jobs created in the 2010s decade were in urban areas. City centers have thrived as adults—young and old—increasingly opt for their experiential lifestyles and the ability to live near jobs and avoid long commutes from suburbs. As offices across America are now shut down or operating at partial capacity and many corporate employees are working from home, the composition of future multifamily demand depends to some extent on how workforce issues are resolved. It seems certain that office working arrangements will become more flexible, but to what degree? Will corporations find that they no longer need to congregate in high-cost metros such as New York, San Francisco and Chicago? Will they increase use of remote offices in secondary and tertiary markets? Workers who are completely remote have much more freedom to live where they want than those who must work at an office two or three days a week. Will giving employees a choice of work location create an exodus from cities? Undoubtedly, for some it will. The pandemic has given many families with children

Foreclosure Buyers Moving Online in Wake of COVID-19 Crisis

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COVID-10’s impact on real estate investing Auction.com’s recently released second quarter 2020 Foreclosure Buyer Insights report focuses on buyer outlook, sentiment and acquisition strategies in light of the COVID-19 pandemic and ensuing market turmoil. The data in the report comes from two surveys. One was conducted in February before national emergency declarations, and the second in April after the national emergency declarations. The surveys were sent to buyers who had purchased at least one property on the Auction.com marketplace. Auction.com is the nation’s largest online real estate transaction marketplace focused exclusively on the sale of bank-owned and foreclosure properties. Survey results for the report were analyzed and summarized by Auction.com’s market research and analysis team, which is led by Daren Blomquist. Among thefindings in the report: Online auctions now top acquisition strategy, with rising interest in remote bidding technology for live auctions. Most hold-as-rental buyers, small-volume buyers and online auction buyers plan an increase or no change in property acquisitions in 2020. 14% percent of buyers expect flat or declining home prices in 2020, up from 7% in 2019. 76% of buyers bought five or fewer properties in 2019. A growing majority of buyers ranked rehabbing and reselling to owner-occupants as their preferred investing strategy. One-third of buyers ranked hold-as-rental as their preferred investing strategy. More than 80% of both rehab-and-resell and hold-as-rental buyers budget at least 10% of a property’s purchase price for rehab costs. 46% of buyers acquire a majority of investment properties from Auction.com. “Most foreclosure buyers are small-volume investors purchasing fewer than five properties a year, and more than 90% of them are either selling to owner-occupants or holding the properties as rentals,” said Jason Allnutt, Auction.com CEO. “This broad base of buyers is proving resilient even in the midst of market turmoil, leveraging the power of online auctions even as other sources of inventory are on the decline.”

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Nearly half of the 50 most vulnerable counties are in New Jersey and Florida. ATTOM Data Solutions released a special report on April 7 spotlighting U.S. housing markets at the county level to show which areas are more vulnerable to the impact of the coronavirus pandemic. According to the report, the Northeast region of the U.S. has the largest concentration of the most at-risk counties, with clusters in New Jersey and Florida. On the other hand, the report indicates the West and Midwest regions are least at risk of housing market challenges. Markets are considered more or less at risk based on the percentage of housing units receiving a foreclosure notice in fourth quarter 2019, the percent of homes underwater (LTV 100 or greater) in fourth quarter 2019 and the percentage of local wages required to pay for major home ownership expenses. Rankings were based on a combination of those three categories in 483 counties in the U.S. with sufficient data to analyze. Counties were ranked in each category, from lowest to highest, with the overall conclusions based on a combination of the three rankings. The full methodology can be found on the ATTOM Data Solutions’ website. “It’s too early to tell how much effect the coronavirus fallout will have on different housing markets around the country. But the impact is likely to be significant from region to region and county to county,” said Todd Teta, chief product officer with ATTOM Data Solutions. “What we’ve done is spotlight areas that appear to be more or less at risk based on several important factors. From that analysis, it looks like the Northeast is more at risk than other areas. As we head into the spring home buying season, the next few months will reveal how severe the impact will be.” Northeast Vulnerabilitiy Housing markets in 14 of New Jersey’s 21 counties are among the 50 most vulnerable in the country, according to the report. The Top 50 also include four in New York and three in Connecticut. The 14 counties in New Jersey include five in the New York City suburbs: Bergen, Essex, Passaic, Middlesex and Union counties. New York counties among the Top 50 most at risk include Rockland County, in the New York City metropolitan area; Orange County, in the Poughkeepsie metro area; Rensselaer County, in the Albany metro area; and Ulster County, west of Poughkeepsie. Additional High-Level Findings The 10 counties in Florida are concentrated in the northern and central sections of the state, including Flagler, Lake, Clay, Hernando and Osceola counties. Other southern counties that are in the Top 50 are spread across Delaware, Maryland, North Carolina, South Carolina, Louisiana and Virginia. Among the counties analyzed, only two in the West and five in the Midwest (all in Illinois) rank among the Top 50 most at risk. The two western counties are Shasta County, California, in the Redding metropolitan statistical area and Navajo County, Arizona, northeast of Phoenix. The Midwestern counties are McHenry County, Illinois; Kane County, Illinois; Will County, Illinois and Lake County, Illinois, all in the Chicago metro area; and Tazewell County, Illinoic, in the Peoria metro area. Counties in the Top 50 with a population of at least 500,000 people include Bergen, Camden, Essex, Middlesex, Ocean, Passaic and Union counties in New Jersey; Lake, Will and Kane counties in Illinois; Delaware County, Pennsylvania; Prince George’s County, Maryland; and Broward County, Florida. Texas has 10 of the 50 least vulnerable counties from among the 483 included in the report, followed by Wisconsin with seven and Colorado with five. The 10 counties in Texas include three in the Dallas-Fort Worth metro area (Dallas, Collin and Tarrant counties) and two in the Midland-Odessa area (Ector and Midland counties). Eighteen of the 50 least at-risk counties have a population of at least 500,000, led by Harris County (Houston), Texas; Dallas County, Texas; King County (Seattle), Washington; Tarrant County (Fort Worth), Texas; and Santa Clara County, California, in the San Jose metro area. Counties where median prices ranging from $160,000 to $300,000 comprise 36 of the Top 50 counties most vulnerable to the impact of the coronavirus. Counties with median home prices below $160,000 or above $300,000 make up 14 of the Top 50 most vulnerable to the impact of the coronavirus. Those with median prices below $160,000 are among the most affordable in the nation to local wage earners, while those where median prices exceed $300,000 have some homes with the highest equity and smallest foreclosure rates.

Vacant “Zombie” Foreclosures Increase Nationally

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ATTOM Data Solutions, Q1 2020 Vacant Property and Zombie Foreclosure Report, released at the end of February, analyzed publicly recorded real estate data collected by ATTOM Data Solutions, including foreclosure status, equity and owner-occupancy status, matched against monthly updated vacancy data. According to the report, about 282,800 homes are in the process of foreclosure, with about 8,700, or 3.1% sitting empty as “zombie” foreclosures. The percentage is up from 3% in the fourth quarter of 2019, but still significantly less than 5.8% in the first quarter of 2014. The total number of properties in the process of foreclosure in the first quarter of 2020 is down 1.9% from the fourth quarter of 2019, while the number of vacant foreclosures is up 1.7%, meaning that the level of zombie properties rose while the count of foreclosures dipped. Since 2016, the number facing possible foreclosure is down 27%, while the tally of unoccupied properties in the foreclosure pipeline has declined 53%. Zombie foreclosures continue to represent just a fragment of the 1.52 million vacant homes nationwide, comprising just one in every 175 properties, or less than one percent. The highest overall vacancy rates for all residential properties continue to be in Tennessee (2.6%), Kansas (2.6%), Mississippi (2.5%), Oklahoma (2.5%) and Indiana (2.5%). The lowest remain in New Hampshire (0.4%), Vermont (0.4%), Delaware (0.5%), Idaho (0.6%) and North Dakota (0.7%).