The Latest on the Distressed Housing Market with Daren Blomquist

Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. If you follow along with Altos Research, you're familiar with our weekly real estate market data video series With the top of Mind podcast, we seek to add context to the discussion about what's happening in the market from leaders in the industry each week. Of course, Altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. And we make it available to you before you see it in the traditional channels. People really need to know what's happening in the housing market right now, and we're looking at 2025. And so if you need to understand the market and communicate about the market, you should join us at Altos Research. Go to altos research.com, book a free consult with our team.

(00:43)
Let's review your local market and talk about how to use market data in your business. Without further ado, I'm thrilled to introduce my guest today, Darren Bloomquist. Darren is a widely recognized authority in the housing and mortgage industries. He's currently a vice president of market economics@auction.com, where he analyzes and forecast complex economic data trends, provides unique insights on the housing market often well before the headlines. Darren's a great follow on social media like LinkedIn. Prior to auction, Darren was a vice president at Adam Beta Solutions where his research and reports were cited by thousands of media outlets nationwide. Darren's been a guest before on top of mind, and I'm really eager to catch up with him today because at auction they have some unique insights about buyer demand with investors and about the supply side on the distressed side. So Darren has some pretty notable view for home price trends in 2025, so we're going to explore all of that today. Darren, welcome.

Thank you, Mike. Great to be here. Always great to talk to you and I'm definitely a religious follower of your data that you guys are putting out each week. It's really great stuff and it's a great bellwether for us in terms of determining how our buyers on auction.com marketplace may be viewing the market as well, because they're looking very closely not to get ahead of ourselves too much, but our buyers who are mostly local real estate investors are looking very closely at the retail housing market and what's going on there, because even though they're buying distressed properties off of auction.com, they are eventually renovating those properties and putting them back on the retail market. So it's important for them to understand what's going on in the retail market as much ahead as possible so they can adjust their strategy in terms of buying distress properties accordingly.

And I mean, this is such a great place to start because occupies a really neat space in the housing ecosystem, is the platform for investors to buy properties, usually ones that went through some foreclosure process or some process like that where they are now brought to market. So auction obviously in the past bubble had, there were a ton of foreclosure properties and distressed properties that had to go through and had to be moved. And so that was obviously a big component of the market, but in the last few years we've had record few people in distressed. So talk to me about the overall right now. So you have both sides. You have the distress side on the supply, so you have real insight there, but you also have the investor side and the people who are interested in buying and of course demand's been down. So tell me about both sides of your market right now.

Okay, yeah, great. And yeah, we love it. I mean, auction is a really interesting marketplace because you do see that almost real time interaction between buyers and sellers going on. And granted it is in the distressed marketplace, but it gives you an idea of what some of these folks who are on the front lines of the housing market are thinking about the housing market, these what we call 'em, local community developers. I'll start with supply side though, that's more of the demand side, the supply side, and by the way, our marketplace accounts for about 40 to 50% of the foreclosure auctions that go on nationwide. And those are, when I say foreclosure auctions, those are specifically what some people might call the courthouse auctions or the trustee sales. These traditionally occur at the local courthouse steps in a lot of areas, although very slowly but surely some states are going online with these auctions, which we encourage and we're all for that and we see a lot better performance when you have online auction.

(05:07)
That's a side note, but so on the supply side, roughly making up 50% of the market, we're seeing that foreclosure auction volume nationwide is still less than half of what it was back in 2019. We're using 2019 kind of as a benchmark of what was so-called normal market. I don't know if that's the further we get away from that, the less that may be true. But using 2019 as a benchmark, we're still at more like 40% of pre pandemic levels or 2019 levels. And we did see, not surprisingly, that supply went way down in 2021 when there was a foreclosure moratorium and it bounced back in 22 and 23. But what was kind of surprising in 24 is we did not see it continuing to climb. It kind of normalized and plateaued at that 40 to 50% level of 2019. If we were in 2019 right now, people would be saying foreclosures are at historically low level already.

(06:15)
At that point, foreclosures were not an issue, not a problem, not something that a lot of people were talking about in terms of a problem for the housing market. So already a low level where less than half of that, it does vary by state. There are some states that have close to a hundred percent of their pre pandemic levels or 2019 levels, they're back to that. And that tends to be a little bit more in the Midwest. And if you go to auction.com/in the news, I'll plug that a little bit. I do put out a lot of heat maps or on LinkedIn, I follow auction.com or myself on LinkedIn you'll see heat maps where we show the supply by state, but it tends to be in the Midwest where you see the supply coming back a little bit more.

(07:05)
High volume states like California are at about 50% of 2019 levels. Texas about 50%. A couple states that stand out outside of that norm are on the low side are Florida, which is in the 20% tile basically almost 80% below 2019 levels. And also New Jersey, New York are kind of in that same bucket. And one thing about those states is they're all three of those states is they are judicial foreclosure states where the process goes through the courts rather than outside of the courts. And so it does historically tend to be longer. So people sometimes ask, is there this? So-called shadow inventory of foreclosures out there. I would generally say no, there's not a huge shadow inventory lurking that's held back. I think there's a little bit of it and we can talk about that, but I am more concerned about that. So-called shadow inventory of distress in states like Florida and New Jersey and New York where we see these really low levels of foreclosures and it's almost too good to be true. Some people would, at least in Florida would say, oh, the housing market is so hot in Florida. That's why you have such low foreclosure activity. That may not be so true anymore, but your numbers probably show that. Right?

Yeah. Well, let's dive into a few things here. So we have less than half of the homes in foreclosure than we did in 2019, and that is generally not, it's not picking up. We're stable in 2024. So that's an interesting signal by itself. Even through, we're recording middle of November here, this'll be out in a couple of weeks. Even recently, we're not seeing any real uptick in the number of foreclosures across the country. Is that true?

That's absolutely right. There's nothing exactly, I was just checking. Our October data, we were at 38% of, so actually below 40%,

38% of October

Of 2019 levels in terms of this is specifically the volume of foreclosures that were what we call brought to auction. So the ones that actually went to that auction and either sold to a third party buyer or went back to the bank.

So if there was no buyer, then the bank still owns it. They tried it, but they didn't sell. Okay, so 38% and not rising in 2024. So that in itself is a signal for the future. There's at least at this point, no national increase to bank on, however, you said some states are back to their 2019 levels and those are like the Midwest states

Tend to be in the Midwest, just generally speaking places like Indiana is a good example, Oklahoma, where they've been hovering around that level.

I was going to ask you, when you said some of the states are back to normal, we'll use air quotes for 2019 as normal. I do the same thing. It's like it's the handiest back to normal reference. So when you said there was some states back to normal, I would've assumed that the back to normal would be the same ones that are back to normal on available inventory. So Texas and Austin in particular, or Florida or Arizona, those Sunbelt states, but it's actually the states that are still low in inventory, although Oklahoma's back to 2019 levels. But if they're Midwestern states, these are ones that are low in inventory.

Yeah, I'm just looking here, Indiana, I mean this is in the third quarter. Indiana was at 85%. It actually had been closer to a hundred percent. Michigan at 71% is on the high side. Minnesota, 83% is on the high side.

So some of these places like Minnesota, Michigan, Ohio, these Illinois, these are states that are just barely above the available inventory of the pandemic levels. So these are restricted inventory states, but they are returning on the distress side. So this is opposite from what I would've guessed, I would've guessed that it's the people who bought in Austin with a 3% down in June of 22 would've been the ones who are struggling now. That's what I would've guessed, but it doesn't. So can you tell me about what

I think it actually on the supply side of foreclosures at this point, it has less to do with the health of the housing market or the health of the economy, which you would guess historically foreclosure rates are very highly correlated to unemployment rates. And so yeah, you would expect what you're saying, but it's more on the supply side right now. It's more about the process of foreclosure and how the process is, how quick it is, how much how it's done, whether it's judicial or non-judicial and how the states have approached, I mean one other, not to get maybe too much in the weeds here, but the way the states handled there was 10 billion during the pandemic set aside to help homeowners avoid foreclosure. It's called the homeowners assistance fund. And it's very interesting to look at how each state was allocated a certain amount. States have widely varied on how much of that they've used. One thing that stands out Florida used was very quick to use their allocated funds there and distribute them more quickly than some of the other states. So it's more stuff like that than I think the actual health of the housing market or economic conditions.

And now when you say it that way, that makes sense, right? Because everybody's got a job where high employment and people's in general, everybody has a lot of equity in their homes and cheap mortgages, which is why in general the foreclosures are low. But there are other reasons why homes go into foreclosure and you have whatever financial distress, and you have divorces and you have tax things that don't get, you have these things that happen and they happen whether or not you have a job. So those are the things that are dominating, it sounds like the foreclosure experience now. And if you have a long court process, then those folks are happening slower and they are much more or less likely to get to a foreclosure process. Is a state like Minnesota, non-judicial foreclosure,

I believe Minnesota is judicial. Now you put me on the spot. I think it's judicial actually. So that actually breaks the model, the model,

But it's an interest, but it seems like that must be what's going on. So normally we have less housing activity happening. We have fewer people who are migrating, moving from Minnesota to Texas or to Florida than we did since 2022. That migration is way down and that's why inventory is building there. But fewer people are selling their houses in Minnesota, and therefore maybe that's a reason that more of those are likely to get into a situation where maybe they're not paying their taxes and that goes into foreclosure or those kinds of things that end up happening. That's a really fascinating trend I had no idea about, and it's opposite of what I would've expected. So that's really, really interesting to know going on right now. So a few states are getting close to the 2019 level. It's the opposite of the inventory states. And tell me about the demand side, the buyer side, they're not just investors, they're local community developers. They're people who buying homes, fixing them, they're buying foreclosed homes, they're fixing 'em in a local market and they're getting 'em back on the market for families to live in.

And we coined that phrase, I mean just because there's so much, there's a narrative around people, especially buying at foreclosure auction or the big bad Wall street investors who are just gobbling up inventory to build a rental empire. I think that may have been more true about 10 years ago, 10, 15 years ago. It's definitely not true now. So just a sign out, the average distance between our buyers and the properties they buy is about 20 miles. So they're buying mostly in their backyard anyway. They know the market is the point. They know the market very well. A lot of times they've been doing this for decades. When we look at the demand side, what's interesting is we do see this, it's kind of the flip of this, the supply side. The other side of the coin is we see the stronger demand in the states where there's less retail inventory.

(16:55)
So there's a definite, in my mind, correlation there between what's going on in the retail market and demand on the foreclosure side. So our buyers and places like the Midwest, places like the States, we talked about, Oklahoma, Indiana, and the northeast as well. We see demand going up. The way that we, there's a couple of ways we measure demand. One is our sales rate, the percentage of properties available for auction, pretty simple. It's kind of like the pending rate on the retail side available for auction that actually sell. And then also what we call price execution, the average winning bid relative to the estimated after repair value of the homes that are being purchased. So looking at those two metrics, those are going up in some of those Midwestern states. There's about 45% of markets the third quarter where that demand was increasing and it mostly was Midwest, northeast.

(17:54)
But then across the Sunbelt Southeast is where you see demand going down at foreclosure auction specifically. Now overall, because of the Southeast and Sunbelt make up a lot of the volume, we do see demand going down. If you look at it at a national level, those demand metrics going down. And they really turned a corner in about May or June of this year, which I think is, if you look at retail inventory, that's around when that kind of turned a corner and started ramping up. And I don't want to over this better than I do, but it might be exaggerating it to say that it ramped up, but we do see retail inventory rising. Yeah, so we do see our buyers in general nationwide. Of course, there's a lot of local nuance getting more conservative in how much they bid, and also I would say shrinking their buy box and maybe buying fewer properties.

(18:57)
And that shift occurred in May, and it's gone all the way through October. Those trends have just continue to go down. It'll be interesting to see what November looks like given the election. When we survey our buyers back in September, a lot of them were saying they were just waiting on the sidelines for the election to happen to achieve some certainty. But on the demand side, the big national trend is coming down, but we do see a good percentage of markets where demand's going up and it tends to be where there's less retail inventory available.

And so you called it the sales rate as one is your sort of barometer of demand, and do you have a national number on that that we can use as a

Yeah, it's around 52% right now as of October. Great. Now I should say, to put this in context, to go back to 2019, there's been a paradigm shift in that demand. If you went back to 2015 through 2019, the average sales rate was more like 38% and we're at 52%. So when I say demand has come down, it came down from a peak of earlier this year, more like 55, 50 6%. So we are coming down, but we're still way actually above those 2019 levels.

And is that because we still have less retail inventory, therefore we sell through more on the foreclosures?

Yeah, I think that's part of the water that we're swimming in is there's not a lot of inventory out there for these investors to purchase. And on a side note, again, we're seeing actually an increase in owner occupant buyers using our platform, which is interesting. And the theory there is they may have just gotten frustrated with the retail market and are turning to other sources. So yeah, I think a lot of why there's this higher level of demand than we used to see.

Oh, right, right. These are not just investors now. Now there's suddenly some first time home buyers who are like, well, this is a way to get into the market maybe at a lower price, a house hack kind of purchase.

We actually just dropped, we do a video series called disposition download on auction.com in the news. It's a fun one. And we interview some of these buyers sometimes, and we just dropped one where a buyer owner, occupant buyer story in Central or Aptos California bought a property in what town? Aptos

In Aptos down by Santa Cruz. Okay.

Yeah, Santa Cruz. So he has a nice ocean front condo that he bought. So anyway, we see more of that. He actually bought several years ago, but we're seeing more of those buyers who at least tell us that they're owner occupant buyers.

Yeah, that's really cool. That's a fascinating trend. There's a lot of really neat trends going on right now. So the sales rate at 52% right now is actually higher than 2019, but the dynamics are so different. Before we had a lot more retail inventory and a lot more distressed inventory. We have half the distressed inventory. So you could imagine that the sales rate would be higher. Now, do you know off the top of your head the 2023 sales rate? The first half of 23 was surprising in the demand, and I noticed it in places like Phoenix. Phoenix prices tanked really quickly in 22, but I noticed a floor on prices, which I attributed maybe to investors with cash, keeping a floor on prices. And so home prices fell year over year in the first quarter of 23, but then rebounded surprisingly quickly at the second half of 23. Did your sales rate correlate with that at all?

Yeah, I'm just looking here. I mean, I'm looking at the national numbers, but we definitely saw the sales rate plunge in the second half of 22, which is probably not surprising, but it did start picking up around February, March of 2023. And it got up to, yeah, it recovered. It was basically the second half of the year until the last couple of months of the year, it was around 55% in late 2022. It had gotten as low as 45% at the end of 2022.

Got it. And so that actually correlates with the same pattern that our price reductions number followed, which is we could see the weakness in the fourth quarter 22, then the headline sales prices had their dip six months later in March, April, may of 22. But by then we could see recovery in our price reductions and in your sales rate, which sort of foreshadowed price stability for the rest of 23, we could already see it turning the corner in February of that year.

That's right.

That's really interesting. Okay, that's good. But then fourth quarter of 23, we had mortgage rates spike. Again, big demand draw, and so it backed off again to set us up for a weaker 24.

Yeah, I mean our buyers were pretty, as I said, the big shift we saw in 24 was around April, may, June, really June was when we really saw it shift that demand through.

So you saw weakest demand around June of this year.

Well, it started shifting downward, and it's continued to shift downward since June in terms of both the sales sales rate has stabilized a little bit, but that winning what we call winning bid to after repair value, our buyers are saying basically we think there's extra risk in the market. And so we want to bake that into our purchase price, our margins upfront. And so that winning bid to value ratio was up around 61% back in April, and it's come down to 54%. And I do want to just make a note on that. It doesn't mean that these people are buying at 46% below market value. These properties are highly distressed. That's relative to what we call after repair value, which I'm sure, but just to set expectations there, you're not getting a 40 to 50% discount necessarily off of the as is value of the home. You have to put a lot of work into that once you buy the property to get it to that after repair value.

That's the whole point of buying distress property. And even if you're an owner occupied, that's the point. I'm doing it because I want to do the work. I want to get the sweat equity into it and make the return.

That's right.

Okay. So that's really interesting on the trends and on the data that you guys see. It is great. Both of the supply and demand side is really a neat view and it's nice to know that it correlates roughly with especially the leading indicators that we see here. So I want to shift gears. There are two big things we want to talk about. First is that while we're talking about the pace of foreclosures and that some of the judicial states are taking fewer in the foreclosure pipeline as much as 80% fewer homes in the foreclosure process than normal, there is something that you and I discussed just briefly that I think you might have an opinion on. And I have had a few folks reach out to me, and these are folks who may be running a big hedge fund or they may be like a investor on the ground, boots on the ground kind of guy who buys properties in or buys bad debt in Phoenix.

(27:42)
So both ends of the ecosystem. I had multiple people say to me, Mike, there are government programs happening now that are preventing foreclosures and we're putting people back into, we're doing a workout or a forbearance thing, and we're putting people back into a cycle where they are taking 'em out of their distressed property and we're resetting the clock and they're not showing up on the distressed the stats because they're worked out and they're not laid on their mortgage anymore. But then we see it happening multiple times to the same property. Can you help me understand this? Is this a thing that I should care about? Is it a thing that's real? Is it a thing I should care about? What's going on? What's the value? Help me know what you know.

Yeah, sure. Yeah, I would say it is a real thing, and a lot of our clients have mentioned this, not so much our clients are the servicers. They're seeing those properties recycle into loss mitigation, out of loss mitigation, back into loss mitigation. And so we heard about this, so we started looking at some of the data that we had access to, which is our own data. We came up with something that I call the foreclosure spin cycle where there is about, I looked at about 400, I'm just looking at the numbers here, 400,000 properties scheduled for auction between 2019 and 2023.

(29:28)
And then just looking at how many of those were scheduled multiple times. In other words, they got scheduled for foreclosure, the auction was canceled for some reason or postponed, but then they came back and were scheduled again multiple times, and about 150,000 of those were in that bucket. So about a little over a third of these properties are at least cycling in and out multiple times. And so it's a real thing. And we are seeing that the number of times they're scheduled has gone up. It's not a dramatic shift, but from about three times scheduled on average among those multiple scheduled to now about four times, what's more dramatic is the average time they're sitting between the first time they were scheduled for auction and the most recent time they were scheduled for auction back in 2019, it was about 188 days between those two. Now it's up to 479 days. So it's gone up dramatically in terms of the time that these properties are kind of sitting in for what I mean you might call foreclosure limbo or this foreclosure spin cycle. And so yes, it's a real thing and it is a concern. Now, I don't think this necessarily means there's this huge shadow inventory of foreclosures because we're at such a low level already. Even if all of these suddenly came on the market or hit foreclosure, you probably wouldn't even see numbers back to 2019 levels.

But 150,000 that you've seen go three or four times through a, we're not making our mortgage payment. We get into the distress cycle, delinquent 30, 60, 90 days we're scheduled for auction, some kind of workout happens. Now they're brought current or renegotiate their current. And then so three or four times you see the same property go through that cycle, and therefore now those folks are 479 days since you saw it the first time is roughly what we're looking at here. And it's 150,000 of those.

And that's just on the auction.com platform. That's not the

Full market. But of the 400,000 that went through 150,000 of 'em were in this. Is it A-C-F-P-B? Is that who's leading the workout? Is there a specific program that

That's part of it? The ccf PB has been very proactive in encouraging servicers to make sure they give borrowers every opportunity possible to avoid foreclosure. And then related to that is during the pandemic, the loss mitigation waterfall that came out of really the pandemic was much more aggressive in trying to help homeowner avoid foreclosure. And so it's been, there's the regulatory side with the CFPB, but then you look at programs put out by some of the government agencies, Fannie, Freddie, FHA, they've rolled out these loss mitigation options that were never available before the pandemic, or at least not widely used. So the FHA, one of the big ones is the partial claim using what's called a partial claim to basically take your back payments that you've missed and put them on the end of the loan as a second loan, non-interest bearing loan that gets paid off when you eventually sell the property. And Fannie and Freddy have a similar kind of payment deferral. So you've seen this combination of things. I would say it's all, the underpinning of a lot of this functionally working is the fact that people have, homeowners have a lot of equity. And so these programs can work and be effective because homeowners have many homeowners even who are in trouble, have a lot of equity in their homes. And so they're able to leverage some of these programs to avoid foreclosure.

Okay. Right, right. So if I'm 90 days behind and I take that and I put those payments on the end of my loan and now I'm current again, it's okay because now I am 63% loan to value instead of 60% loan to value. And it's still a pretty safe loan. Right, exactly. In that mess. That's an interesting thing. So it's not just an aggressive regulatory environment. The actual market conditions allow for this to happen. It's one of the impacts of having such massive equity

(34:58)
Is that these workouts can happen and in 2008, 25% of the country is upside down and you can't do it, you can't do this. This kind of thing is not available. Okay, that's really helpful to me. But three to four times through the spin cycle seems like the way that the investor colleague in Arizona mentioned it to me, he said, he's like, these people are never going to make this loan payment. And they're saying to me, I'm never going to make this loan payment, but they keep going back in. So that three to four times seems maybe problematic. And do you have an opinion on that?

I do.

It's really hard, and I'll preface this, it's really hard to say we should be foreclosing on more homes. That's a real hard opinion to take.

But I think there is a line where it becomes actually counterproductive to the market. But even counterproductive for the homeowner who's in the home. I dunno exactly where that line is, but there is a point where they're actually through this process, they're losing equity over time. They have this equity, but they are leveraging that equity to avoid foreclosure and losing equity. And there's a point where they would've been able to sell early on and get a lot more equity than if they sold later on. And some people would say, well, that's a fair trade off because they're getting a place to live for 4 79 days extra. So I think that's a healthy debate to have for sure. But I think there is a line, and I think we're close if not have crossed that line in terms of where it becomes counterproductive and actually harmful to the homeowners, harmful to the market.

(36:54)
I mean, the other thing with these properties is they tend to be falling into more disrepair over those 4 79 days. And so the neighbors around that home are impacted is one piece. And then another piece you could argue is this paradigm shift in the way that we do loss mitigation slash foreclosure is restricting the supply of affordable housing out there. Now of course, I would say there's a percentage of these properties that are vacant. And so to me that's a no-brainer. Those should be pushed through. But even the occupied ones, it's a harder conversation because then it does involve someone losing their home. But there is an opportunity there to get a new person in that home who can afford it and will maintain the home, which will help the neighborhood. And these homes even they tend to be on the lower side in terms of pricing and more affordable.

(37:59)
So those would be some arguments I would throw out there as to why there should be a line as to how long we allow or just keep putting people through the foreclosure spin cycle over and over again. And actually I talked briefly to Mark, and this was in a public format, mark McCardle over at the CFPB just yesterday. And he sees that, I think of course the CCF PB will probably be changing in terms of how it stands toward regulation, but I think he even acknowledges that they are formulating a loss mitigation rule to kind of put in place some of the learnings from the pandemic, and they want to keep around a lot of the practices and strategies that were used by servicers to help people avoid foreclosure. But even I think there was some acknowledgement on his part is that there is a point where it becomes too much and there is a necessary foreclosure that that needs to happen.

(39:12)
Not of course the optimal situation when a bank originates a loan, they don't want that to end up in foreclosure. Nobody really does. But there's a point where that becomes necessary and then actually it can be become beneficial to the surrounding neighborhood to the homeowner. And sorry, I'm rambling on here. One thing that I think a lot of people don't know is when a property sells it foreclosure sale for a foreclosure auction, if it sells below the debt owed to the bank, that surplus amount does not go back to the bank. It goes to the homeowner. And we're in an environment right now because of the housing market where we're seeing a lot more properties sell with these, so-called surplus funds that go back so the homeowner can walk. It's not like their equity is lost. They actually, they are losing the home, but they're walking away with equity to show for that. It's kind of a protection at the end of the line. If they don't decide to sell before foreclosure, at least at that foreclosure option, they can walk away with that equity.

They get a little bit of the equity. Well, and just to put a bow on that topic, we talked earlier about the judicial versus non-judicial foreclosure states and the non-judicial foreclosure states, it's like you missed your payment for 90 days and it's courthouse steps. And we could see in the last, in the bubble burst in the recovery, the states like Arizona, the mostly southern western states that have the non-judicial foreclosure markets recovered those markets recovered in 2010. 2011 was obvious recovery where in New Jersey you had four years of foreclosure court. And so it wasn't until 2015 before some of those markets finally recovered and people, because that process clears it out and it starts people who can't afford it. And so the point of judicial foreclosure laws is so that the big bad bank can't kick somebody out of their house. And you can understand that that is a worthy goal. And there have been plenty of examples of servicers over time who screwed up and kicked people out they shouldn't have. There is some real challenges there. So you can understand a point of having a court there, but I can also point that the ones that don't have that long multi-year drawn out foreclosure process definitely recover faster from the downturns.

Yeah, absolutely. Yeah, I think the data is pretty clear on that, especially looking back to the foreclosure crisis downturn, the recovery was much faster in the states that we're able to process the foreclosures faster.

That was terrific. That's exactly what I needed to understand about the foreclosure spin cycle.

Awesome.

And it'll be really interesting, and I hope you'll maybe I could get you to, if we watch that 150,000 number climbing or those three go to four to five or six schedule in there, if we see that happening or if maybe we have a new administration that guts the CFPB and maybe it doesn't happen anymore at all and we see what happens on that side, it'll be really fascinating. So hopefully you can we'll check in on that trend.

Sure.

It's not though notably big enough really to move the needle on the distressed inventory not really big enough because people are, there's legitimately not that many people distressed, even the ones that are in this spin cycle. I appreciate that because I had big servicer head fund guy who thought it was significant. I was like, I'm going to find the data on it for you. Okay. So that's great. Let's switch to the other big topic that I want to make sure I get from you today. And that is that you have a pretty bearish view for home prices for the next two years, or at least in the last time that we do this survey together with this company, pulse nos for Fannie Mae where they poll a hundred, they survey a hundred of us who look at home prices and data for a living. And so you had one of the more bearish views in a view that said you're thinking home prices probably dip in 25 and again in 26. Will, is that still true? And also let me hear your argument on why you think that we are maybe in a risky point for home prices.

Yeah, I mean that is still generally true, although I think I just got the email that it's time to do next

Quarter. I know I do too.

So I haven't sat down and really plug in the numbers. But generally, yes, I mean I do tend to think that there will be a slight correction in home prices over the next couple of years. And I know that's counter to a lot of what people are thinking and I definitely am open to being wrong there. But in fact, I would say we're planning our business@auction.com that the market will keep going up because that's a more conservative approach for us. If home prices go down, that actually would probably result in more foreclosures. But we're not counting on that to happen necessarily as a company. But personally, when I look at the couple things, I think that color this mostly are, number one is what we've already talked about a little bit is some of the signals I see in our buyer behavior that signals uncertainty in the market going into 2025 and uncertainty in price stability into 2025.

(45:36)
And then the other one that's a little bit more data-based is just looking at the historical price to income ratios that have become extremely disconnected, especially starting around 2021 and have continued. So if you look at that price to income ratio of, depending on how you look at it, but we're still, the way I would calculate it is what home prices should be if we had traditional historic price to income ratios are about 20% still below what prices actually are. So there's this 20% delta. Now that doesn't mean all of that is made up by a price correction that could be made up by lower, well, not lower mortgage rates. That's not part of the price to income piece, but it could be made up by

Higher income,

Higher incomes. So income's increasing faster than home prices. So some combination of that or home prices decreasing.

So you're looking at affordability, which is obviously strained, and you're measuring it with a price to income ratio and not including mortgage rates, just looking at the price of the home and the income. And by looking at that long-term trend, you see that incomes are 20% below normal.

Well, prices are actual home prices, and this is just at a national level. Actual home prices are about 20% above. I'll put it the other way above what they should be if we had normal price to income ratios. And I think the tendency is, if you look back historically, you're very rarely right on that historical average price to income line. But when we go above it like we did back in 2006, 2007, we tend to revert back to the mean and actually probably overcorrect. So I do see us moving back toward that historical home price to income trend. I mean, I think a big argument against that is that we're still supply constrained and that is keeping this unaffordable environment going.

And that's where I would've gone looking back at 2007, our data was really early for us, but we had some of the data that time and we could really see the ones who overcorrected on the way down were oversupplied, and we could do it as an inventory per capita or people per available home. When we look at that as a metric, we could see that markets can stay unaffordable for a long time given that given a tight inventory per capita. However, though we have some markets in the country which are back to 2019 levels of supply and some Austin, which is at 15 year highs of supply. So

What's your view? Do you have a view on, I need to go back and look at your results on the survey.

Yeah, well, my view for 2025 is that one way to think about it is normal for home prices is about a 5% appreciation is normal for the us and that's because of generally growing economy, generally growing population under building like chronic under building. And so as a result, but over the last decades it's about 5%. We've had five years total of home price declines or something like that in the last, if you look at the K Schiller data over 80 years, we've like five years that have had home price outright down, down years,

(49:57)
Something like that. So my baseline starts at 5% and then you go, okay, but we have affordability challenges, we have rising inventory, we have maybe shifting unemployment things. We probably have negative immigration we have. So we probably have several factors in 2025 that pull out of that. And so I'm looking at, and by the way, we're doing a housing wire forecast paper, which would be available right about the same time as this for HousingWire subscribers. You can go get our full forecast where we dive all of both pricing and the supply numbers. That'll be available on housing wire.com where we do all this logic, but that leads us to believe that we'll be underperformed the long-term trend in 25, but long-term trend is 5% up. So we don't see the broad negative shifted to price declines in the immediate term. That's the way we're looking at it. So we are forecasting at about, I think three point a half percent home price gains for 2025. The affordability challenge is real and it is dramatic, has dramatically reduced the number of people who can buy homes, but we have fewer homes available. What else do we have? We also have interest rates have stayed higher for longer than anybody expected, and that's really impacted the total transaction volume, but has not really impacted the prices with a few local exceptions.

I mean certainly price appreciation has slowed down, right overall, but I mean if you look at the NAR numbers, we did have a slight correction in home prices in 20, was it 23? Yeah, 2023,

Yeah, for a few months in 20, not for the whole

Year point, but yeah, there was a few months that we dipped below. We went negative.

That's right. We did, when I mentioned it earlier, we were talking about your demand indicators that you have in your data. We could see by the time those sales prices were down in the first second quarter of 23, we saw the leading indicators in our data and in your data had already ticked up. And that ended 23 ended up as a positive year, which surprised the hell out of me. I was not expecting 23 to be positive given how catastrophic the end of 22 was. And so

Yeah, the market has been amazingly resilient given the shock of the mortgage rate rise increase back in 22.

One of the things you mentioned on that side was that it seems like now in the fourth quarter of 24, your investors are, your demand from your local community developers are decreasing and continuing to decrease. And one hypothesis I have, and I don't have any data on it, is that a lot of folks had pandemic cash on hand and that's starting, and they could deploy it into things like buying $130,000 foreclosure house and putting some capital into it, but maybe that cash is drying up a little bit. Do you have any insight on that?

Yeah, I haven't heard that from our buyers specifically. Not that it couldn't be true, but when we surveyed them a couple months ago, the election was something that came up. But the number one reason they said that they considered the market a headwind to them buying more properties from auction com or on auction.com was that was pricing. They price, even at the discount they're getting on the distressed discount, they consider that both acquisition and rehab costs going up. Was their number one reason for pulling back.

Yes. Okay. So not just the price of the house, but the impact of three years of inflation on washing machines and things like that and structure. Okay. That's an interesting, and those are real signals, and I think those help me keep the radar up for affordability signals and see if those are, is that sufficiently weakening demand that drives pricing down in the next year? I will be watching for that. That's really great.

I think it's a healthy debate and I think there's really good evidence on the other side of things too. And really I've been surprised by the market over the last few years in terms of how resilient it is. I could be

Surprised

Again,

And I've been generally, I thought earlier this year, like you mentioned in the June May, June was looking really rough and I was assuming that that was going to bring home prices down by the fourth quarter, and we haven't really seen that happen. So I was a little too pessimistic again on prices, and I was probably optimistic on home sales volume growth. So that's really where the surprise came. So that by the way, is data that was in your auction market dispatch report. Is that right? People can go get that.

That's right. Yeah, you can Google auction market dispatch. We're doing that quarterly or look it up on our auction.com/in the news section, you'll find that as well. So yeah, thanks for that.

And you've got some product announcements happening at auction. Is it time to tease that? Do you want to get that out? Just we're going to air and a couple of weeks still,

Unfortunately, not quite yet. But yeah,

Trying to get to Scoop,

I would say we're definitely looking at, I think we're at an inflection point, several inflection points in the broader market that lend themselves to opportunities and I would say continuing what auction.com has been about since the beginning, which is kind of disrupting the distressed marketplace. So that's what we're looking at is ways to continue to do that. We did that back in 2012 was when we entered the foreclosure auction marketplace. Before that, most properties that went to foreclosure auction, I talk about that sales rate now being at 52%. It was more like back before auction.com came into the marketplace, it was more like 20% or less than 20%, 80% of properties went back to the bank, became res, and we came in and said, Hey, this is actually an opportunity. It's not just a checkbox to get the property back to the bank. It's an opportunity to sell the property. It takes risk away from the bank for the bank, but it also does a lot of other things. Gets these properties back into the retail marketplace faster, and it provides those surplus funds that I mentioned earlier for the homeowner. If there is equity in that property, at least that homeowner can get that equity. Whereas if it goes REO, if the bank then turns around and sells it for more than what was owed, the bank gets all those surplus funds, doesn't go back to the homeowner,

Right? Right. It's an efficiency thing for everybody in the market. And that's really before when you did on the auction, on the courthouse steps, it's standing there on the other side and wants to bid on that at that moment is that's the audience. It reaches a much bigger audience.

So we've definitely tried to broaden that audience. So it's actually a true marketplace competitive, transparent marketplace, and we're looking to continue to do that.

Darren Bloomquist, we've blown through an hour already. It's a really great conversation. I appreciate your insights and your data so much. You helped me dial in my expectations on home prices and the things that I'm looking for. So those signals are really terrific, everybody. Darren Bloomquist, you can posts a lot of great stuff on LinkedIn, but also at auction.com/in the news is where all that data comes out. Look for the auction market dispatch report, anything else we want to make sure people pay attention to. Darren,

I think that covers it. I really appreciate the time and the opportunity, Mike.

That's terrific. Alright everybody, this is the top of mind podcast. I'm Mike Simonson. Thank you for joining us. If you enjoy the podcast, I really appreciate a review some five stars on your podcast apps because that helps other people find us and share the really insights about the housing market from folks like Darren. So thanks everybody. Thanks Darren.

Thank you