Thursday, Nov 21, 2024

Off-the-grid deals: Distressed property trends and market insights

In a supply-constrained housing market, even landing a deal at foreclosure auction has become challenging, but those deals tend to be more readily available in markets or neighborhoods that are off the beaten path.

“It’s oddly enough in states where people are leaving,” said Florida-based real estate investor Paul Lizell of the markets where he is more focused on acquiring investment properties in 2024. Lizell primarily purchases distressed bank-owned (REO) properties at auction, and trains other investors across the country to do the same through his REO Auction Academy. “It’s very, very market dependent right now.

“I’m still focusing on those markets with very low (retail) inventory. See if I can pick up a deal there,” Lizell continued, citing the outlying suburbs of his hometown of Philadelphia as an example. “If I get something it will be a bidding war (when I sell).”

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Nationwide, distressed property auction volumes are running at less than half of pre-pandemic levels, and prices at those auctions have risen as competition heats up for the shrinking pool of distressed properties to purchase.

Data from Auction.com, which accounts for close to half of all foreclosure auctions nationwide, shows foreclosure auction volume in the first quarter of 2024 was at 49% of its Q1 2020 level — or 51% below its Q1 2020 level. REO auction volume in Q1 2024 was at just 38% of its Q1 2020 level, according to the Auction.com data.

Meanwhile, the average winning bid relative to after-repair value has been rebounding nationwide after a short-lived dip at the end of 2023 — both for foreclosure auctions and for REO auctions. The after-repair value is the estimated market value of a property in fully repaired condition. Most properties that sell at foreclosure and REO auctions are in need of major renovations, far from being in fully repaired condition.

The price-to-value ratio for properties sold at foreclosure auction in Q1 2024 was 58.8%, up from 57.0% in the previous quarter and up from 54.1% in Q1 2023. For REO auctions, the price-to-value ratio was 57.5% in Q1 2024, up from 55.0% in the previous quarter and up from 56.0% in Q1 2023.


Off-the-grid deals: Distressed property trends and market insights

Willing to lose money

Atlanta-area real estate investor Tony Tritt has been seeing foreclosure auction volumes shrink and prices rise at foreclosure auctions in his market. In Georgia, all foreclosure auctions are at the local courthouse steps.

“Very few that are on the original list … actually make it to the courthouse,” he said, noting that there are plenty of investors interested in buying the limited number that do make it to the auction. “When those hit the courthouse steps … they are going to buy it.”

Tritt, who owns Tritt Realty, said he recently talked to another local investor who purchased a property at foreclosure auction. That investor was willing to lose money on the deal just to keep his construction crew busy.

“I have no homes to work on, but I’ve got guys that need to work. I don’t care if I make money on these,” Tritt said the fellow investor told him.

The Atlanta area has traditionally attracted myriad real estate investors given its consistent population growth and relatively affordable housing stock. That puts it firmly on a very well beaten path when it comes to demand from buyers at foreclosure auction.

The Auction.com data shows that Atlanta’s foreclosure auction volume in the first quarter of 2024 was at just 23% of (77% below) its Q1 2020 level. Meanwhile, the price-to-value ratio for Atlanta-area properties sold at foreclosure auction in Q1 2024 was 64.5%, above the national average of 58.8% and up from 56.8% in the previous quarter and 54.0% in Q1 2023.

But an analysis of Q1 2024 foreclosure auction data from Auction.com in 143 metro areas nationwide shows that some markets are running counter to the national trend, both in terms of volume and in terms of pricing.

Top 10 markets for rebounding foreclosure auction volume

While foreclosure auction volume nationwide was less than half of its pre-pandemic level in Q1 2024, there were 21 markets out of the 143 analyzed (15%) where Q1 2024 foreclosure auction volume was above pre-pandemic levels.

Those 21 markets were led by Hartford, Connecticut; Midland, Texas; Lake Charles, Louisiana; Cedar Rapids, Iowa; and Hammond Louisiana. Rounding out the top 10 were Lexington, Kentucky; South Bend, Indiana; Honolulu, Hawaii; New Haven, Connecticut; and Baton Rouge, Louisiana. In all 10 of those markets, foreclosure auction volume in the first quarter of 2024 was at least 30% above its Q1 2020 level.

Top 10 markets for falling prices at foreclosure auction

Counter to the national trend, the price-to-value ratio at foreclosure auction decreased in Q1 2024 compared to a year ago in 50 of the 143 markets analyzed (35%). Those markets were led by Houma-Thibodaux, Louisiana; Redding, California; Pine Bluff, Arkansas; York-Hanover, Pennsylvania; and Anniston-Oxford-Jacksonville, Alabama. 

Rounding out the top 10 were Beaumont-Port Arthur, Texas; Amarillo, Texas; Honolulu, Hawaii; Cape Coral-Fort Myers, Florida; and Greensboro, North Carolina. In all 10 of these markets, the price-to-value ratio at foreclosure auction decreased at least 10 percentage points compared to a year ago.

Enterprise, Alabama-based real estate investor Kerry Wojtala witnessed firsthand the difference in activity at foreclosure auctions in different markets when she visited Dallas last year.“Dallas is chaotic and frenetic compared to little old Enterprise,” said Wojtala, an Australian who moved to small town Alabama a few years ago and fell in love with real estate investing there. “I started investing in foreclosures predominantly with my husband and have branched out and now found that I have a love of small town America and restoring some of the old buildings and downtown centers.”

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By: Daren Blomquist
Title: Off-the-grid deals: Distressed property trends and market insights
Sourced From: www.housingwire.com/articles/off-the-grid-deals-distressed-property-trends-and-market-insights/
Published Date: Tue, 21 May 2024 13:45:00 +0000

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