FORECLOSURE VOLUME FORECAST TO INCREASE 24% IN 2023 TO HALF OF 2019 LEVEL ACCORDING TO DISTRESSED MARKET OUTLOOK
Proactive pricing key to optimal distressed disposition outcomes as housing market slows;
Auction bidder behavior predicting retail home price declines in 4 of 10 largest U.S. markets;
Some high-level takeaways from the report:
- Foreclosure auction volume in 2023 is forecast to increase 24 percent from 2022 but would still be about half of 2019 levels even with that increase.
- Auction bidder behavior is highly correlated to future retail home price appreciation and is predicting retail home price declines in 4 of 10 of the nation’s largest markets in early 2023.
- Lenders are starting to adjust pricing lower at foreclosure auction in response to the slowing retail market and slowing demand from real estate investors.
- 72 percent of homes renovated and resold after distressed auction are sold to owner-occupants.
Auction.com, the nation’s leading distressed real estate marketplace, released its 2023 Distressed Market Outlook report, which shows that foreclosure volume is poised to continue its gradual post-moratorium rise in 2023 after plateauing in late 2022.
A regression model with inputs of unemployment rates, home equity rates, mortgage rates, seriously delinquent (SDQ) mortgage rates and average days delinquent forecasts 104,000 completed foreclosure auctions nationwide in 2023. That would represent an increase of 24 percent from the projected 2022 total of 84,000 but would still be about half of the pre-pandemic level of 206,000 in 2019.
“As pandemic-era foreclosure protections gradually phased out in 2022, we saw a slowly rising tide of completed foreclosure auctions, not a massive tsunami that some might have feared,” said Daren Blomquist, vice president of market economics at Auction.com. “Even with the forecasted increase of 24 percent in 2023, completed foreclosure auctions would still be at about half of their 2019 levels.”
Bidder behavior predicting slowdown
The report also shows demand for distressed properties shifting lower in the last three quarters of 2022 as buyers at foreclosure auction and REO auction anticipated the downshift in the retail housing market and began bidding more conservatively.
“I’ve seen a lot of my competitors just stop buying … expecting prices to go lower and so they are wait and see,” said Francois Delille, a foreclosure auction buyer in the Houston area.
Bidding behavior at auction acts as a reliable predictor of future price appreciation in the retail market, and this bidding behavior points to falling home prices in early 2023 in four of the 10 largest U.S. metro areas.
“You have to be careful about fixing and flipping that you’re not catching a falling knife,” said Florida-based REO auction buyer Paul Lizell. “Just be a little more conservative. … For us we are shifting, too, where we’re buying. Some of your more cyclical markets may take a 20 percent hit.”
Proactive pricing at auction produces lift
The report includes results from an analysis of lender pricing strategies at foreclosure auction in Q4 2022 in response to the shifting distressed property demand and slowing retail housing market.
Lenders who adopted a more proactive pricing strategy saw a net gain of 40 points in sales rate when compared to lenders who stayed with a more status quo pricing strategy. The proactive pricing strategy came with a net loss of 2 points in price execution when compared to the status quo pricing strategy.
“With home prices now down more than 9 percent from their May 2022 peak and forecast to fall further in many markets, lenders who price proactively will minimize the risk of taking on properties that are losing value every day,” said Ali Haralson, president of Auction.com.
Other report takeaways:
- Foreclosure auction sales outperformed traditional REO sales by 40 points in 2022 in terms of estimated net proceeds.
- Foreclosure auction sales result in retail homeownership rates that are 14 points higher than traditional REO sales.
- Third-party buyers at foreclosure and REO auction renovate properties to 99 percent of “after-repair” value on average.
“The distressed market was infused with some of the same exuberance that dominated the retail housing market in 2021 and early 2022, but distressed property buyers quickly returned to more sustainable bidding strategies as the market slowed in response to spiking mortgage rates,” said Jason Allnutt, CEO of Auction.com. “Sellers most nimble in this volatile market will produce the best and most responsible distressed disposition outcomes in 2023.”
About Auction.com
Auction.com is the world’s leading distressed real estate marketplace that engages buyers with a real-time bidding process, providing more transparency than a traditional real estate transaction. With more than 700 employees in offices across the United States, Auction.com uses world-class technology and data science to bring buyers and sellers closer together, bridging the gap between both sides and unleashing the power of the marketplace with its unrivaled transaction platform. For more information, visit: https://www.auction.com
Contact
Daren Blomquist
Auction.com
Tel.949.355.3371
Email: dblomquist@auction.com
