Housing Inventory

Strong demand for distressed properties at auction in early Q2 2024 is undermined by early signs of falling demand in June, even with contracting auction supply The price bidders are willing to pay at auctions falls after hitting a 25-month high in April Some of the largest declines in price-to-value ratios in markets with substantial increases in retail housing inventory The bid-ask spread at auctions widens in May and June as sellers hold prices steady even as bidders adjust them downwards Auction.com, the nation’s leading distressed real estate marketplace, today released its Second Quarter 2024 Auction Market Report, showing that demand for distressed properties sold at auction showed early signs of falling in June, even as the supply of properties available for auction continued to contract. The report is based on exclusive property inventory, bid and price data from Auction.com, the nation’s largest distressed property marketplace, accounting for nearly half of all properties sold at foreclosure auctions nationwide. “The drop in demand at the end of the second quarter could be an early sign that local developers who buy at auction are becoming increasingly wary of rising retail inventory, which represents competition for renovated homes they sell or rent and return to the retail market, typically within six months of the auction purchase,” said Daren Blomquist, vice president of market economics at Auction.com and author of the report. “If the drop in demand continues into the third quarter, it would also portend a slowdown in retail home price appreciation.” Because buyers at distressed market auctions anticipate retail market conditions three to six months into the future, bidding behavior at such auctions provides a reliable, forward-looking indicator of trends in retail home price appreciation. “I feel like the retail market has softened,” according to Tony Tritt, a local community developer operating in northwest Georgia who renovates and resells properties he buys at foreclosure auctions, primarily to occupancy buyers. “I am waiting longer to sell my renovated properties because they don’t sell like they used to.” Demand falls from multi-year highs at end of second quarter Thanks to strong results in April and May, most auction demand metrics show strengthening demand for the second quarter overall compared to the previous quarter, but monthly data reveals a clear decline in June for many demand metrics, including bidders per property, sales rates and winning bid-to-value ratios. The average number of bidders per property sold at bank-owned REO auctions in the second quarter was 2 percent lower than the previous quarter, but still up 3 percent from a year earlier. But in June, that bidder-per-property metric fell 17 percent from May and was down 3 percent year-over-year. The foreclosure auction sales rate (the proportion of properties available for auction that were sold) increased in the second quarter, both quarterly (up 5 percent) and annually (up 4 percent), but declined 4 percent in June from a 25-month high in May. The June sales rate was still up 3 percent from a year earlier. A similar pattern of declining demand in June from a nearly two-year high at the beginning of the quarter is reflected in price-related demand metrics for both foreclosure auctions and REO auctions. Winning bidders at foreclosure auctions in June were willing to pay 58.7 percent of a property’s assessed value after repair on average, down from a 25-month high of 60.7 percent in April. Winning bidders at REO auctions in June were willing to pay 58.6 percent of a property’s assessed value after repair on average, down from a 25-month high of 61.7 percent in April. Declines in auction buyer asking prices in June still occurred against the backdrop of an overall second-quarter asking price increase. The average winning bid-to-value ratio at REO auctions for the full quarter increased 4 percent from the prior quarter and 1 percent from a year ago, while the average winning bid-to-value ratio at foreclosure auctions for the full quarter increased 1 percent from the prior quarter and also 1 percent from a year ago. Demand for market prices Several major markets where retail inventory builds are reaching dubious milestones saw a more prominent decline in the price demanded by distressed property auction buyers in June. The winning bid-to-value ratio at foreclosure auctions declined by double-digit percentages from both the previous month and the previous year in Miami, New Orleans, Tampa Bay, Orlando and Denver. Retail inventory in May 2024 had risen above May 2019 levels in four out of five of those metro areas, with Miami being the only exception, according to data compiled by ResiClub. Miami, meanwhile, had the highest share of “stale” listings (the proportion of unsold listings that remain on the market for at least 30 days) of any major market in the country in May, according to data compiled by ResiClub. Red fin. Supply contraction continues The first signs of a decline in demand at distressed property auctions in June came despite a continued contraction in the supply of properties available to purchase at auction in the second quarter. The number of properties taken to foreclosure auction in the second quarter was less than half (46 percent) of the pre-pandemic level in the first quarter of 2020. That was down from 49 percent in the previous quarter and 57 percent in the second quarter of 2023. REO auction supply was even more restrained relative to the pre-pandemic level in the second quarter. The number of REO properties brought to auction during the quarter stood at 36 percent of the level of the first quarter of 2020, down from 38 percent in the previous quarter and 40 percent in the second quarter of 2023. Offer by state Supply continued to vary widely by state. The states with the highest supply of foreclosure auction properties relative to pre-pandemic levels in the second quarter of 2024 were Connecticut (319 percent of the first quarter 2020 level), Alaska (139 percent), Kentucky (122 percent), Louisiana (120 percent), South Dakota (113 percent), and Colorado (103 percent). The states