Getting Smart on the Distressed Housing Market

In this episode of the Top of Mind podcast, Mike Simonsen sits down with Daren Blomquist, Vice President of Market Economics at Auction.com, for a deep dive into the state of the distressed housing market, the latest insights from investor buyer behavior, and what the Auction.com platform can tell us about the housing market that we can’t see anywhere else. 

About Daren Blomquist

Daren Blomquist is the Vice President of Market Economics at Auction.com. In this role, Daren analyzes and forecasts complex macro and microeconomic data trends within the marketplace and industry to provide value to both buyers and sellers using the Auction.com platform.  

Daren’s reports and analysis have been cited by thousands of media outlets — including all the major news networks and leading publications such as The Wall Street Journal, The New York Times, and USA TODAY. Daren has been quoted in hundreds of publications and has appeared on many national network broadcasts, including CBS, ABC, CNN, CNBC, FOX Business, and Bloomberg.

 

Here’s a glimpse of what you’ll learn: 

• The big trends in foreclosures and how the distressed market compares to previous years
• Two unique data points Auction.com uses to forecast future home prices
• Will investors be the backstop for a faltering housing market, or will they be the catalyst for a deeper market correction?
• What will happen with foreclosures in a recessionary economy — how many homes will be in foreclosure, and how quickly will it happen?
• Daren Blomquist’s outlook for what’s next in the industry

Resources mentioned in this episode:

• Daren Blomquist on LinkedIn
• Auction.com
• Auction.com In the News
• “Why Do So Few People Buy Affordable Properties at Auction?" by Jung Hyun Choi, Laurie Goodman, and Liam Reynolds
• Mike Simonsen on LinkedIn
• Altos Research

About Altos Research

The Top of Mind Podcast is produced by Altos Research.

Each week, Altos tracks every home for sale in the country - all the pricing, and all the changes in pricing - and synthesizes those analytics to make them available before becoming visible through traditional channels.

Schedule a demo to see Altos in action. You can also get a copy of our free eBook: How To Use Market Data to Build Your Real Estate Business.

Episode Transcript

Intro 0:02

Welcome to Top of Mind, the show where we talk to real estate industry insiders and experts about the biggest trends impacting the market today. Enjoy the show.

Mike Simonsen 0:13

Mike Simonsen here. Welcome to the Top of Mind podcast. I'm Mike from Altos Research. Thanks for joining us. The Top of Mind podcast is where I talk to the smartest leaders, thinkers and doers in the real estate industry to provide some context and perspectives beyond the market data that we put out every week at Altos Research. At Altos, we track every home for sale in the country, all the pricing the supply and demand all the changes in that data and we make it available to you. Before you see the traditional channels. People desperately need to know what's happening in the housing market right now, especially as fast as the landscape is changing right now. So if you're asking, Where can I get the data for my local market? The answer is you can get it from Altos Research, visit altosresearch.com. To do a free consultation, we'll look at the data in your local market, we can talk about how you use market data in your business. So without further ado, though, I'm thrilled to introduce my guest today, Daren Blomquist. Daren is a widely recognized authority in housing and mortgage industries, and is currently the vice president of market economics at Auction.com where he analyzes, forecasts all the complex economic data trends to provide the unique insights on housing. Often well before the headlines, Daren and I have done some stuff on stage together and in Auction, has Auction.com has some unique a unique view on the world. So I'm looking forward to discussing that today. Prior to joining Auction.com, Daren was the VP at Adam data solutions, and where his research and reports were cited by 1000s of media outlets nationwide. So he's somebody had been very eager to catch up with for a while. So I'm super excited to have this conversation. Daren, welcome.

Daren Blomquist 2:18

Thank you, Mike. Yeah, it's great to be here. I've I've wanted to catch up with you as well for a while. Yeah. And I enjoy seeing all the stuff that Altos Altos Research puts out. And certainly it's some of the most real time data I see the first kind of first kind of data I see on the market before a lot of the headlines come out. So that's, that is really cool. And really good to be speaking with you today.

Mike Simonsen 2:43

That's terrific. So so let's start with with you and Auction.com For our listeners who don't know Auction.com. And, and you in particular, once you give us an overview, what is what's Auction.com doing?

Daren Blomquist 2:59

Yeah, what we're doing is we're a online marketplace for foreclosure and bank owned properties. So we're the largest distressed marketplace out there. And when I say marketplace, I mean marketplace that you know, I think that word is kind of used loosely sometimes. But just to hit that point home, we actually are transacting on on properties where the platform we're not, we're not the seller, or the buyer, we're the platform. And we facilitate as much of a transparent marketplace as we can. So the sellers and buyers are both happy with the outcomes and get the you know, the best, best price on both sides of the equation that they can. And so we're yeah, we're just to hit that point home, even in this market where foreclosure inventory is severely restricted or has been severely restricted. And was already low before the pandemic. Were transact. We're bringing to auction on the two sides of the equation foreclosures and bank owned properties or REO properties, about let's see 4500 properties a month this year. And so there's but you if you compare that back to 2019, I was just looking at this to get my numbers, right. But we were seeing about closer to almost 15,000 properties brought to auction a month. Now one thing in 2019. So and 2018 was considered a low watermark. And it was a low watermark for foreclosure activity. So we've come down from there, but we are still we're transacting on, I would say a pretty high volume of property still, relative to at least anywhere else. And one of the really cool things that I get to look at is, you know, we're seeing it's a it's an auction platform. So there's bidding going on, and we're seeing that behavioral activity right in real time around a property price realization happening in real time basically, within at least at a foreclosure auction that happens in a matter of minutes, that a property goes from being available for auction to being sold in most cases. And, and so that's happening very quickly, but we're capturing that bidding behavior, we're capturing the credit bid that the bank is setting the property at how much they think it's worth, and, and how much they're willing to set that credit bit at. And so there's a lot of really cool information there that helps us see what what is happening in the market. And I consider the front lines in the market in many ways. Because these are the people who are buying on our platform, our investors, typically, who are buying the homes in either renovating them and reselling them as flips or renovating them and holding them as rentals. But there are investors who are very, very hyper aware of the conditions in their market typically, because they they're selling back into that market.

Mike Simonsen 6:10

Yeah. So tons there to get to there's so much and I want to get to the the foreclosure inventory, where we are I want to talk about that where we are now and where we'll be in the future. Like there's some real meat there. And I'm also interested in diving in more on the what we're seeing right now with that bidding activity in a world where the the consumer buyer has backed way off. So lots to cover there. Before we get there. Tell me about how you got found your way to this role at Auction.com Because you have a ton of data there and you present it very well. And so so give me your background. How'd you get there? How'd you end up in our our crazy little corner of the universe?

Daren Blomquist 6:55

Yeah, I stumbled into this crazy corner of the universe probably about 20 years ago. I moved from Illinois to California, because my wife is from California, and we met in Illinois. But we were like, Let's go somewhere where we have family. So we came back to California. I got a while I was looking for a real job. I got a temp job at this little company called Realty track, which is a startup and with maybe five to 10 people. And that was in 2001. About you know, very soon after I got there, we got placement on Yahoo which was a big deal back then. And and so we blew up but we it was a subscription service. People would it was and Realty Trac was a foreclosure foreclosure listing service, basically, this idea of you don't have to go down to the courthouse and get the information we'll post it online for you all this information about the properties that are up for foreclosure. And anyway, the the we blew up after we got on Yahoo basically as a short and simple way to say it and that that company took off between 2002 and 2005. And then in 2005, we started putting out of a report and this was with a fellow friend of ours, Rick Sharga. He came on board at Realty Trac and we said let's put out how do we get some attention for our company. Let's put we have all this data around foreclosures, let's put it out, put out a report started doing that in 2005. And all of a sudden the numbers in about 2006 started spiking. And we were reporting is amazing. Sensational, some might call percentage increases in foreclosure and we got a lot of credit criticism that you're overstating the numbers, you're double counting the numbers. And all of a sudden and a couple years later, people had to kind of admit, and we weren't doing everything right. We actually didn't even know all of what we were doing. But we actually did turn out to be I think, right that there was a problem brewing. Yeah,

Mike Simonsen 9:13

for sure. You're one of the few people who've been who've been at it in this space longer than I have these days. You know, we I started Altos to January one of 2006. So like that's, you know, been in there and that was a real ride for Realty Trac. That was a real rocketship right place at the right time for that company.

Daren Blomquist 9:39

Yeah, what's interesting is that the company did well during the housing boom. We got a lot of attention during the the downturn because we have all this data on foreclosures, but that actually helped us realize and evolve into a company that that sold data became more of a b2b company as opposed to beat See, because we realized there was a lot of value for businesses in this data in a bulk format, as opposed to just an online one by one property consumer format. And so that that's the rest of the story is, is between maybe that 2009 and 2015, we transitioned into Adam data solutions, which is a company that that licensed data and licenses, the the data in bulk, and not just the foreclosure data, it was all around the broader real estate data. And but then in 2000, what was it 2019, I came over to auction.com. I have been familiar with them for some time. And that just turned out to be a position that, that that was tailor made, really, for me, in my opinion. And so it came over here, and it's been a great ride. It's been a very interesting ride since then, of course, here with, with what's happened since 2019.

Mike Simonsen 11:05

Sure, okay. That's a terrific summer. I appreciate that perspective. You know, I moved from Illinois to California. Mine was about it's, you know, 9899. That's, as I said two bubbles ago, said moving to Silicon Valley. But yeah, so Okay, so have you've been in the foreclosure data space for 20 years, watching the properties that get foreclosed that have to get taken over by the bank or turned over and auctioned? And then during the pandemic, we had a foreclosure moratorium? Well, let's even start before that 2019, as you point out was already low, few numbers of homes in foreclosure and primarily as because mortgage rates were cheap, and people had equity. And the pandemic starts. We put in a foreclosure moratorium because a lot of people lost their jobs. And then the market took off. So even when people started working again, and even when the moratorium no longer exists is still very ultra few foreclosures happening. And so so let's start with so you said there's you guys are doing 4500 A month transactions now you were doing 15,000 a month, in 2019, say a third of that level, from 2018 to 2019, was already low.

Daren Blomquist 12:47

Yeah. And to clarify, those are properties brought to auction not all of those sell. But we're actually seeing a much higher percent right now we're seeing close 50 to 60% of that those selling that sales rate is an indication of investor demand, which we can talk about that actually has been fought just in the last few months. I think somewhat leading or at least mirroring the overall consumer. Those numbers have been coming down. But anyway, that just those the 40 515,000 are the properties brought to auction available, basically inventory and of those, you know, 50 to 60% or or

Mike Simonsen 13:28

Purcell are actually selling? Yeah. And so what else do we need? Do? What else should we know about those 4500 properties? What was so it's I think it's interesting that they've they've obviously we've had a tonne of investor demand in May and that you can imagine I know some investors who are like taking a wait and see approach right now. So what else? What are the characteristics of those homes of the that market of those trends? What should we know about those 4500 homes a month that are coming to to auction?

Daren Blomquist 14:04

Yeah, I think I think actually that's a great question because that it's not the the inventory that we saw during the foreclosure crisis of 2008 2009 where there's a lot of actually pretty new homes in pretty good condition that were selling these 4500 are really the the bottom of the barrel I mean, for whatever reason that we get a lot of the questions like why would anybody get foreclosed in this this housing market with so much equity but there are unfortunately there are situations where properties are in such poor condition and in situations that are just and you know, the best option for the homeowner actually is to to get out of there. And so that's what those 4500 are those are there's the the highly scratch and dent I don't know if I like that term, but the the highly distressed properties that need often substantial renovation. And that's why they're going to foreclosure. And they are I mean, geographically, they're all over the country. We're nationwide. But we do see the most inventory still in the northeast and rust belt are kind of the high the highest invert inventory in terms of per per capita, I guess you could say. And yeah, those that's that's what those 4500 are, there's a high percentage of just slightly disproportionate percentage of FHA mortgages, there tend to be a little bit more risky in this environment. Right.

Mike Simonsen 15:47

So the FHA mortgages, they did they typically allow you to put zero or 3% or something less down on the mortgage. And is that is that typically what that makes them more risky?

Daren Blomquist 16:03

Yes, yeah. They're, they're more risky because of the downpayment, a combination of the low downpayment along with especially starting around 2014, FHA started loosening some of their requirements around debt to income ratios that started going up, and, and some other factors. But yeah, that that makes them more risky. So that they tend to be borrowers that are just a little bit more financially stretched. And so any kind of shock? And unfortunately, over the edge, yeah.

Mike Simonsen 16:43

Okay. So and then if the house isn't well maintained, then you're like, like, I can't make the mortgage. And it's really hard to sell this thing, because it's, it's a bit of a wreck. And or we haven't been there in a year, or, what, two years or something since the pandemic, and and now we just don't want to deal with it anymore. Those types of things, start our work coming to market. Are there signals in that data? That that's changing at all? You know, this year, we, we've got sort of wrenching economic changes inflation, we've got some GDP, slow down. So, you know, people still haven't really lost their jobs. But like, you know, is there any signal that that that type of property is is, is changing. So for example, you said, you're in the most commonly in the northeast and rust belt is where we're finding those properties now.

Daren Blomquist 17:53

But of course, age, by the way, and there, there's a great study done by the Urban Institute, that your listeners can maybe look up if they're, if they really want to deep dive into this. The Urban Institute looked at some of our data a couple of months, a few months ago. And one of the things they keyed in on is how old the properties are, I think the average age, depending on what kind of our properties you're looking at, it's it's around 1960. That there they were built, whereas the average age of I believe that you might know this better than I do. But the average age, I think, of all homes nationwide, is around 1978. So are the average year built anyway. So they're older properties that are that, again, leads into this more distressed piece. But to answer your question, we haven't seen a shift yet that I have noticed in the data tore away from that distressed you know, really classic distressed property, as opposed to just financially distressed, but maybe the condition isn't as distressed. We haven't seen that shift yet. I think, you know, to your point, it starts for us. The biggest, you know, our final two properties on our site starts with unemployment. And so that hasn't that led that lever has not changed now when that starts going up that has a trickle down effect on distressed and that's the number one driver of of delinquency.

Mike Simonsen 19:24

So that yeah, so that's and the way I've been thinking about unemployment lately. And the impact on housing is that, you know, if you're unemployed for 90 days and starting to feel like I'm not going to get, I'm not going to find a job anytime soon. Then you start really worrying about your money and you stop making mortgage payments and then it's another 90 days of not making mortgage payments. Before you even really trigger like if some real like you start getting delinquency notices, but you're not in a fork. What was your process? Yet? Is that correct? Is that a good way to?

Daren Blomquist 20:03

Yeah, but yeah, there's I mean, right. And I am very loosely, I almost think of it, like from unemployment to, to when it hits us, it's it the first thing, the first time we see it is when it's scheduled for foreclosure auction, you know, that's going to be at least a year in most areas from that, that shock event to when it's scheduled for foreclosure auction, and that that may be a minimum. Yeah. So I mean, a lot of the properties we're dealing with is one of the reasons that the Northeast is still heavy inventory. Is there some of the longest foreclosure processes in the country processes? And we're actually still dealing with, with inventory that was that was created during the last housing bubble and bust there. Lately, believe it or not, 10 years ago, 10 plus years ago? Yes. And so that's, that's one of the kind of unintended consequences of that those lengthy foreclosure processes, which are designed to protect the homeowner, but you end up with this very delayed inventory, distressed inventory coming out, and it tends to be more highly distressed, the longer it's delayed to.

Mike Simonsen 21:19

Yeah, that's really fascinating. I know, watching that the recovery markets, the markets that had would took coming out of that, out of the bubble, the markets that had judicial foreclosure process, you gotta go to court took Cigna years longer to recover than the the, you know, the 90 days sold on the courthouse steps kind of states, and, and those were the fastest to recover, coming out of the, you know, out of the biggest mass. Really fascinating watch. So, okay, so one year between employment shock, and the time when it's really starting to be inventory

Daren Blomquist 22:02

is a Yeah, and I would say that's a minimum,

Mike Simonsen 22:05

a minimum. And so this is really fascinating, right? So, you know, right now we have ultra low unemployment. So even if we start to see unemployment rise by end of the year, it's still probably low ish, even if it's like, even if the economy's slowing way down, and we get some, you know, like, it's still pretty low ish. So then maybe shock, unemployment is mid next year. So then we wouldn't even see inventory until the middle of 2024. Two years from now. If

Daren Blomquist 22:49

from, from something that happened now, now, I do want to make the point that we are seeing our numbers rise, our volume rise, and it's gradually slowly gradually rise. And it's we believe, it's what the data tells us it's primarily has to do with the backlog from the pandemic. There's not a huge backlog from the pandemic but there is a backlog of folks who got there the foreclosure process got stopped and it's slowly restarting. So that So volume is going up because of that tying back to that event. But to your point yes. For kind of new volume created out of maybe some of the the problems in the economy that we're seeing now. that would that would be Yeah 2324 type of

Mike Simonsen 23:43

that. Yeah, that'll be really interesting and then v so yeah, so so that the sunblock backlog climbing now are you seeing anything one of the places I'm interested in watching are like the Boise Salt Lake City austin texas markets where we were we had you know, people moving out of California by in sight unseen overbidding it's okay to spend a million bucks and Boise because I was I just sold for a million and a half in LA and like you know, and I'm getting more house so but that stopped in so we can watch markets in places like Boise you know, the percentage of homes on the market in Boise that ticket price reductions like 59% Right now it's a big it's really slow. And, and it took people a very abrupt change. So if I bought in Boise in February and I over bid and now I'm underwater and or like I could I could you know, I assume I'm underwater and I look like I take a long time to sell Are you seeing? Are you a seeing anything there yet? It seems early before that, for that for those, but do you have any sense on when we might see distressed inventory? In a place like Boise that, you know, we're, we're people over bid more than anyplace else in the market? Austin, Texas, Phoenix, you know, a couple places like that as well. What's the what's the horizon

Daren Blomquist 25:31

there? Yeah, I think where we would start to see some of that hit her her radar would what it's going to be another year or so really where we start to see the volume. Now, one of the things we see kind of on the another way to look at it with our data is through what the what the investors are doing on our platform where, where they're more aggressive in buying, and where they're less aggressive in buying? Or they're definitely pulling back more in what I would consider that the hottest markets. I, I could pull this by, by metro to but I do I just by region just to cast a really wide, wide net. When when I looked at one of the demand metrics we look at is the number of times a property is that's available for auction is saved. foreclosure auction and save. That's an it that's a strong user data. I've

Mike Simonsen 26:34

used the data on the website. Yes, yeah. So how

Daren Blomquist 26:37

many times how many people are saving that property, that's an indication, they're probably going to bid on that property at the auction. And so anyway, that saves per property has been consistently over the last or this year, even the highest in the southeast, and the West. So the West is those the Boise's of the world. The Southeast is maybe like the Atlanta's of the world, or somewhere like that, that those have been super hot market markets. Those are getting those are the properties they're getting the most online sales. But with that's also where we've seen the biggest drop in the last few months just starting in, really After peaking in February. In the southeast, for instance, 44 saves for property up for auction has gone down now to 28 essays. And in the West 39 essays peaked in February as well now down to 24 saves, you know, getting close to half of the level. Whereas if you look at the Midwest and Northeast, our investors have stayed pretty steady there. Back in February, it was both of those were at 25 states for property, and now they're at 2021 states for property. So it's pretty close. So so all that to say I think our investors becoming a lot more cautious about those markets there. And in talking to some of those investors who are buying there, they're actually saying, Yeah, we're we're shrinking our Buy Box becoming more conservative, going into the areas that we're more confident in and the price points we're more confident in. And so they are moving away from from those super hot markets and those super what they would call cyclical markets, potentially. And so I think that sets those markets up for even more potential downside, in that you don't have you have the investors backing off of those markets, which is one one channel of demand along with of course that the the owner occupant.

Mike Simonsen 28:40

Yeah. So let me ask you this. So the the investors as a backstop for a slowing housing market, slowing demand housing market, we we What's your take on how resilient investors are going to be on the one hand, like they're looking if I've been buying in, in Phoenix, I've stopped cold, because I don't know what's going to happen next. But on the other hand, rents are pretty good. The rents aren't going down yet. And so as as investment properties, like there may be that like the the math still works out just fine in terms of the cash flow. So we're maybe it's a little it's less because it because you know, as mortgage rates have come up, so so. So what's your take on investors as a backstop or maybe not as maybe as a catalyst for further down? You know, cycle?

Daren Blomquist 29:44

Yeah, that's really interesting, I think dynamic there going on, but I think see how to answer the question in a couple of ways. Maybe, but I do think when I look at, you know, I look at macro, macro housing data beyond just To our data. And I do definitely see some concerning trends with investor activity in some of these markets that I think is speculative and actually mirrors a little bit of the patterns that we saw leading into 2006. Not that I want to compare this to, to that time. Exactly. And so I think there's, that's a risk in this market is the market, in especially local markets, like a phoenix that were had been highly propped up or stimulated by investor activity, they're more susceptible to a downturn, when those those investors are much more fickle, the source of demand, and then owner occupants, and when those investors decide to pull out now, that said, I would say another way to answer that question is, when when we pull our, our buyers, and when I talk to them, and even looking at their behavior. It's not this extreme. They're not so scared of the market, as some of the headlines would make it sound and so yes, they're becoming more conservative. They are. They're shrinking their Buy Box, they're bidding, they're bidding more conservatively, but they're still bidding and they're still buying, and there's they still see opportunity. And, and, and yes, there's this kind of element of there's the opportunity now, and there's the potential opportunity, if the market did correct, or crash or whatever the word you want to use is, but at least the longer term investors are saying, Yeah, this is my business, I'm gonna keep buying. I'm gonna find the deals. I mean, there's always opportunity in real estate, I may have to change the way I'm acquiring the price I'm acquiring at, but they're continuing. And so they're, they're not the sky is falling situation. But yeah, they're they're also they're kind of starting to set is that the funds for? For purchasing in even higher volume if there was a correction?

Mike Simonsen 32:18

Right, so. So it sounds like the investors that you see, still have their cash. They still want to be they still want to participate in and they are participating, but maybe just a more focused, a more focused Buy Box. Is that sound about right?

Daren Blomquist 32:40

That sounds? That sounds exactly right. Yeah. That's really,

Mike Simonsen 32:43

that's really interesting. So in that sense, it kind of the fact that they have cash, and are waiting for opportunity is really that one, it tells me that that arbitrage evaporates very quickly. It's like, you know, when, when, when the COVID market, we had our downturn, we had three weeks down market before people started buying. Right, right. And, you know, I know people in San Francisco who've been waiting for 15 years with cash for the next downturn. Like, oh, we're gonna go by, you know, and they had three weeks of opportunity. And so it'll be really interesting to see. Like, that says that because that cash is there. And because those people are in that business, it says to me, that the investors probably do create some amount of backstop for a downturn just to prevent a severe downturn, because there, they start seeing they start seeing deals, they're gonna buy it. Does that yeah, and good logic?

Daren Blomquist 33:53

Yeah, I think that's good logic for the most part. I mean, I think there's different tiers of investors there there are. There are some of our buyers who if there is a downturn are gonna get scared and stop buying completely. And but others who are in for the long term who who would, would be more of that backstop. But you know, that doesn't, that doesn't mean that the market wouldn't. They would stop the market from falling. But I think there's there's a cushion there. There's enough. My sense is there's enough of that kind of dry powder sitting out there. That would come into the market. I think there'd have to be a there would have to be a correction for that to come into the market. But it would prevent the market from necessarily falling as as much as it did last time just because everybody saw a lot of people made out very well. Buying during the last downturn and so there'll be a lot of copycats, I think,

Mike Simonsen 35:04

yeah, there's a lot of people, people will look back and, and you know, we always fight, we always fight the last war. And so we look back and we want to see the crash coming. You know, people expect to see that a crash must come. And, and then they also see that I want to be there ready with my cash to, to buy. And by virtue of having that perspective, they actually prevents the whole thing from happening. That's really, really interesting. So that I mean, I think, another comment you made in there, which were you said, you see some mirrors to 2006? What are the mirrors that you do see what feels the same? It can, it's always very easy to say it's different this time, but what feels the same as 2006?

Daren Blomquist 35:57

Yeah, two specific data points that I was looking at, there are what I call short term flips, which whatever you want to debate the, the, what that means, but for for, for me, it meant homes that were flipped within six months or less. Uh huh. As opposed to longer than that, obviously. So there was if you look at and this is using data from my own company, Adam. And not so not just foreclosures, everything, and those numbers went up to a level that was higher than 2005, for the first time, it near the end of 2021. Looking at it on a quarterly basis. So there was a spike in those really short term flips, which I would consider consider potentially a little more speculative. And then and some of that has, you know, may have to do with some of these eye eye buyer activity, which would be lumped in with that flipping. But to me, that's, that looks, you just look at it on a chart, you see this parallel. And then another one that you look at an eye chart, and you see that parallel that looks the same is cash buyers, which is kind of a similar thing. But the number of cash buyers hit an all time high in 2021. And I mean, by a longshot, and I'm trying to I don't have the numbers right in front of me. But those cash buyers were just flooding into the market. And that was what we saw in 2005 2006, that the numbers look very similar, just just higher now than they actually were back then.

Mike Simonsen 37:38

So that's interesting. I didn't know that was a characteristic of the oh, five period, more cash buyers at that time. Because

Daren Blomquist 37:49

there's more cash buyers, then that time, but there was that spike in cash buyer buying? Yeah, back then as well. Yeah, that kind of surprised me too, because we blame a lot of the 2005 on just everybody. Everybody been able to get a loan, right? Yeah,

Mike Simonsen 38:06

over mortgage. Right. Everybody was over mortgage and less equity. But there were more cash buyers at that time, too.

Daren Blomquist 38:14

Yeah, I mean, there were there was a spike in cash buyers leading up to it. I think that that would indicate investors coming in potentially, and a different probably a different type of investor. And, and yeah, I haven't really dug into those numbers as to why because that doesn't seem to correlate with the storyline. Yeah, 50,000 Well,

Mike Simonsen 38:37

I wonder if I wonder if it's the I know, a lot of the cash buyers, this time were like, Hey, I will pay with the cash to get the deal done. So I can move to the top of the queue. But then I'm going to refinance, I'm gonna finance it out in 60 days or something after I've got the deal closed. And they were just they were simply using cash as a, as a negotiating tactic, even though they're ultimately going to have it financed. But that's interesting, I didn't realize that, that the cash buyers were doing that in 2005. Two, so those are real parallels, and I'm with you on the flips, where, you know, the, the, when you're looking at it, like the the deadly move of 2006 was I'm gonna get the teaser rate at 1.1%. And then, and then I'll just when that thing in a year when it resets to six, I won't be able to make the payment, but I'll either refi or I'll sell it at that point. And then all of a sudden you couldn't sell it. And so those flips. I think we at least don't have that part of the market now. Right? We don't have people who have mortgages, resetting There, they will figure out a loan there, you know, in tooth in 2021. There there are 3% and that it's 3% forever. So those at least it feels a little healthier on that side to me.

Daren Blomquist 40:13

Absolutely. Yeah, I think overall, the market is much healthier. Right now. Actually, I mean, my biggest concern is that the, the response to the pandemic, actually has unintended consequences and ripple effects that, that lead to another housing bubble. And I don't know if we have a lot of time to get into that. But we've talked about that a little bit. Is, is your lead, actually going into the pandemic, we were actually kind of what I would, I would say, describe as coming in for a nice soft landing in the housing market, and a much needed soft landing. If you look back in 2019, home price appreciation was slowing down, depending on whose numbers you look at single digits, very low, single digits. And then we had all all this stimulus come into the market and create this frenzy of of buying, it's created this, this market that we've seen over the last few years.

Mike Simonsen 41:22

Yeah. So let me ask you a couple of more things on the on the data side. Are there we talked about your saves per property, which is an indicator of investor interest. So if you've got 44, investors looking at properties and saving it, that that's indicate a leading indicator of whether they're going to bid on them. And you can send you said that you've seen that number come down, especially in the southeast, and the West, where the bigger big investor markets. And I think it's notable that it's not really coming down in the northeast, or the rust belt. So there are other data that you have visibility to@auction.com, that is unique to the world.

Daren Blomquist 42:10

Yeah, another I think another key one, a couple other key ones, but I'll mention the other. First one is, we look at the winning bid, as a percentage of the estimated as the as value of the property. Excuse me. So when when we get the property, the seller says we. And this is usually based on an exterior drive by of the home because you can't get inside. But based on that, here's the value of the property. And then the winning bid is a percentage of that. Yeah, so we've seen that drop. I mean, well, during the pandemic at Queen kind of the marrying kind of the frenzy in the overall market. We saw that rise, and so people were paying on our platform 990 to 95% of that estimated as is value, which is crazy before the average before the pandemic. Just looking at this really quickly was below 80%. Like 78%. So anyway, during the pandemic, the the frenzy we saw that rise up to 90, and even as high as 95% in some months. So, but now, since again, that topped out in February, there was it hit 91% in February. And since then it's it's dropped. And we're now actually at 78% in July. The most recent month. Oh, so people are paying less, they're willing to they're setting their maximum allowable offer at auction, lower because they're they're bidding more conservatively conservatively. And I think that's a real sign that the investors are becoming a little more cautious of the market. They're not again, they're not fleeing the market, but they're they're becoming more cautious and kind of hedging their their bids based on that.

Mike Simonsen 44:25

Yeah. So So we're at a normal level of value bidding right now you'd say we're back to a normal level of value bidding. Oui, oui, oui. And you can imagine that investors come to a platform like auction comm like part of the point is that I'm getting the asset for less than it's worth, like part of the trade is that is that I'm getting it less than its value. That's why I go work. I go to an auction. And so But and so the discount from that value is back to normal level view of us sense, whether that's going to keep falling? Or it's gonna, like, can you see the slope of the curve? Is it accelerating? Or is it is it? Have we hit a bottom?

Daren Blomquist 45:11

Yeah, I'm looking at it, it has definitely not hit a bottom yet. Now that 78%, as I said, is actually happens to be kind of the mean. So if we revert to the mean, I would expect it expect it to bottom out soon, at around that that number. But it's fallen very quickly from from from the 90%. Yeah, and to be clear that, that, so that's based on the as is value of the home, of course, a lot of investors are looking at estimating the after repair value, which is much higher, so the discount below the after repair value would be more than that, you know, at 78 78%, actually is, is, is getting pretty good 22% below that as is value, but it's more like 60% below the after repair value, anyway, just to make that clarification. But yeah, to your point that they're, they're pulling back. And if it doesn't bottom out, then that's actually a bigger concern for the market, in my view that the investors are not as confident in the market.

Mike Simonsen 46:25

So you're exactly like we're here. And then so we really want to know, next next month, and you're ready to keep our eye on that. To know, whether that's whether the investors are getting more and more cold feet, there'll be Do you have a sense on whether that leads some of the other market data, for example? You know, like, transaction prices or something like that, that we can go, you can go look you do you have a sense of like, Is that is that a league leading or coincident or a lagging indicator?

Daren Blomquist 47:02

We've done some research on that. And, I mean, it looks like a leading indicator, well, if we combine that that metric the winning bid over the seller value, or the as is value with with actually the same number that I mentioned earlier, and and run a regression on that we can there's a pretty strong correlation by about a month to the existing home median existing home prices that NAR puts out. home price appreciation. And so it's it's not a it's not leading by a tonne. But so, but this July number, if we ran that through the that regression, we will be able to predict what an AR is an AR is existing home home price appreciation is it is going to be for August. And of course they don't release their August number until September. So there is there's a little bit of a lead there. And and all of that is pointing to continued decrease in in that price, which maybe isn't earth shattering news, but that that price probably going below or that price appreciation going below double digits very soon. Yeah, it's the amount. That makes

Mike Simonsen 48:29

a lot of sense to me. Now. Okay, so do you have let's shift gears, let's talk about the future for a second. I am interested in when I talk to folks on this podcast, I'm I'm interested in their views of the future. In particular, I'm, you know, I'm interested in what makes what makes a tank from here. What are the what are the risks? That maybe we people don't talk about enough? But also like, where do you actually see it? And what what, you know, where do you do? Do you think there are risks? Or do you think that it's more likely to do another thing? So let's talk a little bit about the future. Where do you see the future? next couple of years in the housing market? What risks should we be paying attention to that maybe don't get enough? Don't get enough attention?

Daren Blomquist 49:27

Yeah, I think I think the housing market is responding to the the efforts of the Fed primarily to end slowing down and I think that's exactly what should happen and needs to happen to prevent another housing bubble. And if we're not already in one, and so I see if the if that continues and the Fed sticks to its plan, terms of raising interest rates That should slow down the housing market in a healthy way. And and we could potentially achieve that kind of soft landing scenario that we were already on in route four back in in 2019. And had this kind of this detour here over the last couple of years, that I think is probably still the most likely scenario in my mind. And, and of course, we look at that because it impacts what our, you know, what our volumes are going to look like. And if that were to happen, we would see the this is at a market level, not just our numbers, but we would see foreclosure volume in foreclosure volume back in 2019. If you look at completed foreclosure auctions, which includes those that that are brought to auction and that sell anyway, that those were 206,000. In that soft landing scenario, we see that returning by the way, sorry, I keep on interrupting myself here. But the the number in 2021 was only about 63,000. So we're really

Mike Simonsen 51:11

200 and some 1000, completed in 2019 to 63,000 63,000 is nothing.

Daren Blomquist 51:21

It's nothing. Yeah, yeah. And so that the soft landing scenario, we would see that return basically to the 200,000 levels and kind of plateau there. And there is I do think there's a increasing chance here of the the recession scenario that a lot of people are talking about in the house in the economy, which would, of course, impact the housing market, or at least I believe would impact the housing market. And in that scenario, where you would see some rising unemployment, you would see home prices, I think in some markets, go negative nationwide flatten out, maybe go slightly negative, nationwide. And in that scenario, we'd see foreclosure volume rise to as high as 450,000 in 2024. Okay. So I mean, I know this is a lot of speculation, but that's somewhere between those two scenarios is how I see the market playing out. And I think to the extent that we don't try it, the efforts aren't made to cool off the housing market sooner rather than later. You know, the housing market will cool off itself more severely later, if it's not done sooner, if that makes sense. So yeah,

Mike Simonsen 52:44

so that's a real interesting forecast. So let me see if I got it, right. Normally, we might have 200 250,000 foreclosure completions in a year, peak pandemic 2021, we had 63,000, which is like, it makes sense. It's the same ratio of active inventory to, you know, normal to now like, all of those things seem like they're in that same bucket where, where, you know, like, the market was hot for all those reasons. And across all those metrics, so normally is to 200 or 250. Last year, we had 63,000. Like, that's nothing. Because, you know,

Daren Blomquist 53:34

there is a backlog.

Mike Simonsen 53:35

Yeah, you probably had those in Vegas alone in 2007. Yeah.

Daren Blomquist 53:39

Question. Yeah.

Mike Simonsen 53:41

And so. So then, in a recessionary world, let's say we go into a sharp recession, in 2023. Then by 2024, we probably see 450,000 foreclosure completions. Like that's the that's the big recession scenario. Is that Is that right?

Daren Blomquist 54:02

Yeah, I would say I would describe it as a mild recession scenario. That's okay. Yeah. My so that's the you know, and that has unemployment going up to pinch. I mean, this is kind of crazy. Just about 6%. Okay, nothing crazy. So, and, and mortgage rates, sitting 6% as well. So, the I would I would still describe that as a mild recession scenario. Yeah,

Mike Simonsen 54:29

for sure. Okay. So but that would put at risk a bunch of those buyers, FHA buyers, especially buyers that that bought in early this year in the hot markets. That'd be a few of those folks that would be that would that it'd be at most risk and and then you lose your job and like things stumble then then that those are when when Those studies.

Daren Blomquist 55:01

So you do have the twin twin issues of loss of job. And that scenario also has a slight downturn in pricing and home prices. And so you had that combination is can be really lethal for first time homeowners. Yeah,

Mike Simonsen 55:19

for sure. And you know, and I could watch it, we could correlate it, the default rate to the, we use our market action index, but which is a supply versus demand, but you could also do it versus the time on market. So if I'm looking at the median days on market at, you know, at 200 days, in my neighborhood, and I lose my job, I'm never going to sell this house. But, you know, in 2021, if I, if I lose my job, and I'm in weird situation, the median market time is seven days. Like, I go sell a house, and that's, you know, therefore, you know, like, I'll put on and it'll be done before I even miss a mortgage payment. Like the whole thing. Like, it's really it's really incredible that way, when the market time is seven, so therefore, we ended up with only 63,000 foreclosures that that that year. So, you know, watching Market time climb. At the same time as we hit, you know, we flatline I think we're gonna flatline on home prices, based on the fact that we are that inventory is climbing year over year, pretty significantly. So it's still lower than the normal but but like, I think we're gonna see flatlined on on home price gain over the next year. And recession, so like, all of those things hit, do you have a quick take? On what happens in a severe recession?

Daren Blomquist 57:02

Yeah, we haven't modeled that specifically. But that, you know, I think that's then that that foreign 50,000 can quickly go up. I mean, the problem becomes, I think somewhat, it's always there's a psychological element to this too, but it becomes in that scenario. There's a, there's an exponential x, x exponential effect on on some of these things with with the psychological impact. So I don't have a number to spit out. But I think that number can quickly become quite higher. By the way to put it in context, at the peak of the last crisis in 2009, we saw just over a million foreclosures, so even the foreign 50,000 is less than half of that peak. Yeah. But yeah, a more severe recession. And I think that becomes, you know, your initial question here, which I may not have really answered is what's the risk that nobody is, is thinking about? And I think, and I think there's probably plenty of people thinking about this. But the risk I think about is, if we continue to try to keep saving the housing market. That actually puts us at risk for the housing market at some point, you know, that being a house of cards that collapses, because it's just being saved over and over again, if that, if that makes sense. And so, to the extent we try to keep stimulating or saving the housing market, we get we get it more risk for that more severe recession, or at least in the housing market. Scenario.

Mike Simonsen 58:50

Yeah, the forest has to naturally has to burn a little bit each year. If it doesn't burn a little bit each year, one year, it burns really big.

Daren Blomquist 59:00

Yeah, that's great. Great analogy. I come in from Northern California

Mike Simonsen 59:05

first, and get insurance on his house.

Daren Blomquist 59:09

Oh, my goodness. Yeah.

Mike Simonsen 59:11

So Daren, this is really terrific. Like we've covered a bunch of things. Where you do a lot of posting on LinkedIn, people follow you on LinkedIn, a lot of great data there. Is that a good place for people to follow and track along with your with your output?

Daren Blomquist 59:31

Yes, yeah, I'm, that would be the best place I think to follow it on Auction.com Or where we post a lot of my stuff is Auction.com/inthenews. Okay, and just all one word in the news. Yeah, and yeah, post, post a lot of great stuff there. One of the favorite things that I've been doing lately is going out and interviewing some of our buyers on location. And we have some videos They're so that's really cool. But yeah, those those are probably the two best places that you know, I try to be a Twitter guy once in a while but I'm not really a Twitter. I'm not cut out for Twitter's that may not be the best place to consistently see my stuff Great.

Mike Simonsen 1:00:13

Well I'm gonna go watch some of the videos the interview with some of the buyers love to see those you know now August you know are they changing or though takes changing they're all you know interviewing a buyer in Boise or, or you know Phoenix right now or something like that see where we're what their what their take is?

Daren Blomquist 1:00:37

You Yeah, yeah that actually we don't we don't do as much timely stuff with the buyers, it's more about their story of what they're doing in their communities. So okay. I just don't want to set you up for failure. But I we actually, that'd be really cool to do more of that is the like, just the quick takes on what's going on in your market right now.

Mike Simonsen 1:00:58

Yeah, and I suppose when you do that, you know, you you get their story you understand about whether they're in this for the long haul. And it goes back to our conversation about you know, are they the backstop? Or are they the catalyst for for, you know, a faster tanking market? Yeah.

Daren Blomquist 1:01:17

And I would answer there, I would say the buyers we have right now are more of the backstop, there are certainly more of the buyers who are just jumping into the market, because it's a hot market. But a lot of them are the folks who are in just buying in a certain community. And they've been doing it for 20 plus years. And they're not they're also not, not the big institutional investors, a lot of people think those are the folks behind the foreclosure auction. There might be a little bit of that going on that we see. But most of the people in our data are buying less than 10 properties a year from us. So anyway, yeah, I see I unconfident in our buyers, but as as providing at least one form of backstop and in their local markets.

Mike Simonsen 1:02:06

That's, that's terrific. Yeah, the vast majority of real estate investors in this country are individuals with a handful of properties, like 97% of all that. And even though the big hedge funds are get all that get a lot of press, it's like this is like, you know, people getting one or two properties and holding on to one or two AND, and OR maybe building a small portfolio of fewer year. And, like, that's who that's who owns properties in the US. Okay, they're terrific. Really appreciate your time and your insight. That's exactly what we like to do with the top of mind podcast, everybody. This has been the Top of Mind podcast. I'm Mike Simonsen. And we've been talking a lot about the data. If you need to get the data for your local markets go to altosresearch.com Because, you know, buyers and sellers right now, absolutely need to know what's going on. And a lot of the dynamics that Daren I've been talking about are reflected in the data so that you can communicate these trends to those buyers or sellers right now to investors right now. What do they need to know especially if they're out of market investors buying into your town, lots of real opportunity out there, and everybody needs to know. So that's why we have Altos Research. So everybody Top of Mind podcast. I'm Mike, thanks for next week.

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