According to proprietary data from Auction.com, early indications of waning demand for distressed properties sold at auction that appeared late in the second quarter persisted throughout the third quarter of 2024.
Given that local community developers are projecting retail market conditions roughly six months into the future—the average time it takes to renovate distressed properties bought at auction and return them to the retail market as resales or rentals—waning demand from these developers who buy at auction points to ongoing weakness in the retail housing market into early 2025.
“Just waiting for the market to correct and find balance,” wrote one Auction.com buyer, in response to a survey regarding the impact of market conditions on bidding and purchasing behavior at auction. The survey was conducted between Sept. 25 and 27 and received responses from more than 140 people who have purchased properties on Auction.com.
According to the survey’s findings, more local community developers who buy at auction see the state of the market as a disadvantage rather than an advantage. This is in spite of the possibility that mortgage rates will decline as a result of the Federal Reserve’s September 50 basis point cut to the federal funds interest rate.
About one-fifth (21%) of survey participants, who were all active Auction.com purchasers, stated that the market conditions in late September were making them less inclined to purchase, while over one-third (34%) answered the opposite. The remaining 45% claimed that their inclination to purchase was unaffected by market conditions. Some 30% of purchasers surveyed said that unfavorable mortgage rates were a market impediment, ranking third in importance after higher acquisition costs (55%) and higher rehab expenses (49%). A lot of customers also cited election-related uncertainties as a rationale for delaying purchases.
“The upcoming election has the world for me on hold since I don’t know who will win the White House,” wrote one survey respondent, joining about 10% of buyers surveyed who mentioned the election outcome as a factor influencing their bidding and buying behavior in an open-ended question on the survey.
Auction.com Unveils Broad-Based Drop in Demand
Every major auction demand statistic that this study tracks, including those for bank-owned (REO) and foreclosure auctions, decreased nationally in the third quarter when compared to the prior quarter and to the same period last year, indicating a widespread decline in buyer desire.
In Q3 2024, the average number of bidders per property sold at REO auction decreased by 8% from the previous year and by 10% from the previous quarter. Throughout the quarter, this demand indicator gradually declined, reaching a 23-month low in September. The average number of bids per REO sold in Q3 2024 was still 24% higher than the 2019 average, indicating that demand at REO auctions is still considerably above pre-pandemic levels despite this decreasing trend.
On the front of foreclosure auctions, a similar demand trend was evident. The percentage of properties available at auction that sold, or the foreclosure auction sales rate, fell 3% from the previous quarter and 2% from a year earlier. The rate also declined during the quarter, hitting a nine-month low in September. This demand indicator was still 39% higher than the 2019 average, even with the recent decline.
“Banks are not willing to lend as much money, and the interest rates on distressed properties are 10 percent,” wrote one survey respondent, explaining why he is bidding on fewer properties.
This buyer’s viewpoint was in line with 55% of buyers who said that greater acquisition costs (finance or pricing) made them less inclined to purchase at auction. Out of the six market factors that were shown to survey participants, that was the greatest proportion.
Measuring Auction Demand by Market
A review of the top 65 metropolitan statistical regions in terms of the volume of foreclosure auctions in Q3 2024 shows that, despite a general decline in demand for foreclosure auctions nationwide, more than four out of ten markets defied the national trend.
Of those 65 markets, 29 (45%) reported higher sales rates in Q3 2024 than they did in the same period last year. These markets include Pittsburgh, Buffalo, NY, Portland, OR, Tulsa, OK, and Milwaukee. Conversely, 36 out of 65 markets (55%) reported lower sales rates in Q3 2024 than they did a year earlier. These markets include Las Vegas, Austin, Texas, Charlotte, NC, Alexandrea, LA, and Riverside-San Bernardino in Southern California.
While demand tended to decline in the Southeast and West, it generally climbed in the Midwest and Northeast.
“I was going to stay out of the market, but really low prices on properties is keeping me in,” said one survey respondent, reflecting the minority view that is helping to boost demand in markets with lower-priced distressed inventory.
Overall Price Demand Down from Two-Year High
Both REO and foreclosure auctions saw a decline in price demand in the third quarter, which measures how much purchasers are ready to pay at auction in relation to the anticipated after-repair value. However, some intra-quarter tendencies suggest that this trend may reverse in Q4.
The average amount that winning bidders at the REO auction in Q3 2024 were willing to pay was 54.4% of the anticipated after-repair value. This was a decrease of almost five percentage points from the previous quarter’s two-year high of 59.3% and from 57.3% in Q3 of 2023. Additionally, the REO auction’s winning bid-to-value ratio in Q3 2024 was five points lower than the average of 59.7% for 2019.
Price Demand Bottoms Out in Q3
In Q3 of 2024, successful bidders were willing to pay an average of 56.6% of after-repair value, which was lower than the two-year high of 59.7% in the previous quarter and lower than 58.7% in Q3 of 2023. This was a similar price-demand story in the context of foreclosure auctions. Additionally, the foreclosure auction’s Q3 2024 price-to-value ratio fell short of the 2019 average of 60.3%. After falling to an 18-month low of 56.1% in August, the average price-to-value ratio at foreclosure auction rose to 56.8% in September, while the average price-to-value ratio at REO auction increased slightly to 54.7% in both August and September after reaching an eight-month low of 53.7% in July.
“(The) market has softened but I do see a change coming in the New Year,” wrote one survey respondent who said he has been bidding lower relative to after-repair value in the last 90 days due to market conditions.
With 28 of the 65 metro regions examined (43 percent) reporting year-over-year increases in the average winning bid-to-value ratio in the third quarter of 2024, price demand trends differed by market. Davenport, IA; Baton Rouge, LA; New Haven, CT; Milwaukee; and Columbia, SC, were the top markets in those areas.
The average winning bid-to-value ratio decreased in 57 percent of markets, with San Francisco, Akron, Ohio, Pittsburgh, Portland, Oregon, and Tampa leading the way. One survey participant responded, “Not much inventory, higher prices,” stating that, despite her intention to expand her auction acquisitions over the next three months, she is responding to market conditions by bidding lower than the after-repair value.
Constrained Supply Weakens Auction Demand
Despite ongoing supply constraints, distressed property auction demand declined in Q3 2024.
This was the lowest number of properties brought to foreclosure auction since Q3 2021, when the nationwide foreclosure moratorium on government-insured mortgages caused by the pandemic was still in place. In the third quarter of 2020, the number of properties brought to foreclosure auction was 44% of the pre-pandemic level, down from 46% in the previous quarter and 53% in Q3 2023.
The number of properties brought to REO auction in the third quarter was 37% of the pre-pandemic level in the first quarter of 2020, which was slightly higher than the two-year low of 36% in the previous quarter but still lower than 40% a year earlier. The supply of REO auctions followed a similar pattern, albeit at a lower level.
“Not much changed, just trying to get more inventory,” wrote another survey respondent who said the market has not impacted his willingness to buy at auction.
To read the full report, including more data, charts, and methodology click here.
