Auction.com, It is the largest online platform for selling distressed real estate in Japan. report Demand for homes sold at auction began to decline in the second half of the second quarter of 2024, even as the supply of foreclosed homes also decreased.
The California-based company, which accounts for about 50 percent of the U.S. properties sold at foreclosure auctions, said its own data showed the trend is being driven by rising inventory in the retail market. Altos Research It found that the inventory of single-family homes for sale as of the end of July was up 40% from a year ago.
“The decline in demand late in the second quarter may be an early sign that local community developers who buy at auction are becoming increasingly wary of building up retail inventory, which means competition for renovated homes that are typically sold or rented back into the retail market within six months of being purchased at auction,” Darren Blomquist, vice president of market economics at Auction.com, said in the report. “If the pullback in demand continues into the third quarter, it could be a harbinger of slowing retail home price growth.”
This statement, The First Americans Data released this week showed that real home prices, adjusted for income levels and mortgage interest rates, fell 1.3% from May to June. On an annualized basis, prices in the top five U.S. markets — Raleigh, Austin, Portland, Oregon, Tampa and Denver — fell between 2% and 7% in June.
Auction.com noted that while “one month of data is not yet a trend,” bidding behavior among buyers of foreclosure auction properties tends to be a reliable indicator of future retail home price growth as these investors forecast what market conditions will be like three to six months from now.
According to the company’s data, overall demand from auction buyers increased from the first to second quarter of 2024, but there was a “clear downturn” in June, with fewer bids received compared to May and sales-to-price ratios also declining.
For example, the average number of bids on properties sold through lender-owned (REO) auctions, which include properties not sold through foreclosure, was down 17% month-on-month and 3% year-over-year in June. Also, the sales rate (i.e., the percentage of properties sold) at foreclosure auctions fell 4% in June after reaching a two-year high in May.
Meanwhile, bid-to-value ratios for both types of auctions have fallen from two-year highs in May. Winning bids at foreclosure auctions in June fell to an average of 58.7% of the property’s estimated after-repair value (ARV), while REO auctions averaged 58.6%.
Major markets like Miami, New Orleans, Tampa, Orlando and Denver saw monthly and annual declines in bid-to-price ratios in foreclosure auctions of at least 10 percent. Auction.com noted that these metro areas tend to have a higher percentage of “older” homes, that is, homes that have been on the market for more than 30 days. Redfin data.
The decline in demand is also showing up in the bid-to-ask spread — what buyers are willing to pay and what sellers are willing to accept — which rose to an average of 6 percentage points across foreclosure auctions and 11 percentage points across REO auctions in June.
“The widening of bid and ask price spreads in June is not the result of price increases by sellers (mainly banks, non-banks, mortgage servicers and government-sponsored entities),” Auctions.com explained in its report. “Rather, the widening of bid and ask price spreads is primarily due to a dramatic decline in prices asked by buyers between the start of the April quarter and the end of the June quarter.”
The supply of homes for sale at both types of auctions has declined and is now less than half of what it was before the pandemic, according to Auction.com. Core Logic Data shows U.S. foreclosure rates near 25-year low.
However, the supply of distressed homes varies by region, with some states, led by Connecticut, Alaska, and Kentucky, seeing more homes going to foreclosure auction in Q2 2024 compared to the start of the COVID-19 pandemic in Q1 2020. In contrast, states such as Florida, Rhode Island, and Nebraska have less than a quarter of the foreclosure auction supply they had before the pandemic.
