The increase in housing inventory causes the demand for distressed properties to decrease: Auction.com

Auction.com, recently became the country’s largest online platform for distressed real estate sales reported that demand for homes sold at auction began to decline late in the second quarter of 2024, while the available supply of foreclosed housing also declined.

Proprietary data from the California-based company, which accounts for nearly 50% of all U.S. properties sold at foreclosure auctions, shows that this trend is fueled by rising inventory levels in the retail market. Dates of Alto’s research found that the inventory of single-family homes for sale was up 40% year-over-year at the end of July.

“The drop in demand at the end of the second quarter could be an early indication that local developers buying at auction are becoming increasingly wary of rising retail stock, which means competition for the renovated homes they are selling or repurposing renting on the retail market – usually within six months of the sale. buying at auction,” Daren Blomquist, vice president of market economics at Auction.com, said in the report. “If the decline in demand continues into the third quarter, this would also portend a slowdown in house price growth.”

That statement is supported by First American Data released this week showed real house prices – adjusted for income levels and mortgage interest rates – fell 1.3% from May to June. On a year-over-year basis, five major U.S. markets (Raleigh; Austin; Portland, Oregon; Tampa; and Denver) saw prices decline 2% to 7% in June.

Auction.com noted that while “one month data does not constitute a trend,” the bidding behavior of buyers at foreclosure auctions is often a reliable indicator of future home price appreciation as these investors estimate what market conditions will be like three months from now to see. up to six months.

The data showed that overall demand among auction buyers grew between the first and second quarters of 2024, but there was a “marked decline” in June as there were fewer bids on properties, along with lower sales figures and lower price ratios compared with May.

For example, the average number of bids on properties sold through lender’s auctions (REO) – which involves assets not sold through foreclosure – fell 17% month over month and 3% year over year in June. And after hitting a two-year high in May, the foreclosure sale rate (i.e., the share of properties sold) fell 4% in June.

Meanwhile, bid-to-value ratios for both types of auctions have fallen from a two-year high in May. Winning bids at foreclosure auctions in June fell to an average of 58.7% of a property’s assessed value after repairs (ARV), while those at REO auctions averaged 58.6% of the ARV.

Bid-to-value ratios at foreclosures fell at least 10% month-over-month and year-over-year in key markets such as Miami, New Orleans, Tampa, Orlando and Denver. Auction.com noted that these metropolitan areas often have a high proportion of “stale” listings that have been on the market for more than 30 days, according to Redfin facts.

Lower demand levels are also reflected in bid-to-ask spreads, that is, what buyers are willing to pay versus what sellers are willing to take. In June, this difference increased to an average of 6 percentage points for foreclosure auctions and 11 percentage points for REO auctions.

“The widening bid-ask gaps in June were not so much the result of higher prices by sellers – primarily banks, non-banks, mortgage servicers and government-sponsored entities,” Auction.com explains in its report. “Instead, the widening bid-ask spread was primarily the result of the more dramatic price drop demanded by buyers between the start of the April quarter and the end of the June quarter.”

The supply of homes brought to both types of auctions is declining and is now less than half of pre-pandemic levels, according to Auction.com. This ties in with recent KernLogic data showing that US bankruptcies are near a 25-year low.

But distressed supply varies by location, and in some states — led by Connecticut, Alaska and Kentucky — more homes went to foreclosure in the second quarter of 2024 than in the first quarter of 2020 at the start of the COVID-19 pandemic. pandemic. Conversely, states like Florida, Rhode Island and Nebraska have less than a quarter of their inventory at foreclosure auctions.