Published by ThinkRealty.com | October 17, 2023
Local investors stay disciplined even as institutional investors continue to retreat.
Local real estate investors who started out the year cautiously bullish have become more confidently bullish as the housing market continues to prove its resilience in the face of elevated mortgage rates and slowing home price appreciation, according to bidding data from Auction.com.
After turning a corner in the first quarter of 2023, as buyers started to shake off the shock from skyrocketing mortgage rates in the second half of 2022, bidder demand metrics on the Auction.com platform continued an upward trajectory in the second quarter, both in terms of quantity demanded and price demanded.
Rebounding Demand
The average number of online saves per property available for foreclosure auction increased 4% in the second quarter compared to the first quarter and was up 3% from a year earlier. Online saves are a forward-looking indicator of quantity demanded from Auction.com buyers, the majority of whom are local community developers purchasing fewer than 10 properties a year within a 100-mile radius of where they live.
“We believe the market is absolutely rebounding,” said Tony Tritt, an Atlanta-based real estate investor who buys at foreclosure auction. “There is robust bidding at the courthouse steps. It came back in full force about two months ago.”
A more real-time indicator of quantity demanded is the foreclosure auction sales rate, the percentage of properties available for auction that sell to third-party buyers. This sales rate shot up 11% in the second quarter compared to the first quarter. It was the second consecutive quarter with an 11% quarter-over-quarter gain.
The sales rate in the second quarter of 2023 was still down 2% from a year ago, but it was a whopping 45% higher than the pre-pandemic average in 2019.
The sales rate was also boosted by an increase in the price that local community developers were willing to pay for distressed properties. The average winning bid as a percentage of estimated “after-repair” property value increased 9% in the second quarter on a quarterly basis, the second consecutive quarterly increase in this metric after it bottomed out in the fourth quarter of 2022. After-repair value is the estimated full market value of a property in good condition.
Disciplined Demand
The price-to-value metric was still down from a year ago, by 3%, and it was also 2% below the pre-pandemic average in 2019. This indicates investors are staying disciplined on their pricing, particularly in comparison to the buying frenzy that occurred in 2021 and early 2022. During that timeframe, the price-to-value metric averaged 9% higher than in the second quarter of 2023.
