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Industry Snapshot: Increasing Foreclosure Numbers Still Well Below Pre-Pandemic

Auction, Real Estate concept. Hand with judge gavel and house modelThe amount of foreclosure volume rose to a new pandemic high last quarter, but according to new research by Auction.com, that number is still 68% below pre-pandemic levels. 

Using internal data that reaches about 50% of the foreclosure market along with MLS and public data,  Auction.com released its fourth quarter Foreclosure Market Forecast which also found that completed foreclosure auctions in Q3 2021 increased 16% from the previous quarter and were up 89% from a year ago—a new pandemic high. 

The rise in foreclosures was not unexpected as foreclosure protections began to fade in June. However, some borrowers are still being protected by mortgage forbearance and a temporary rule from the Consumer Financial Protection Bureau that is due to expire at the end of the year. 

“The tsunami of foreclosures many feared in the early days of the pandemic has not materialized thanks in large part to the swift and decisive foreclosure protections put in place by government policymakers and the mortgage servicing industry,” said Ali Haralson, President of Auction.com. “While many of those protections are still in place, foreclosure volume is gradually rising as some slowly phase out.” 

Relative to pre-pandemic foreclosure volume levels, a few states stand out from the rest—Oklahoma (97% of pre-pandemic level); Indiana (78%); Michigan (60%); Mississippi (46%); and Wisconsin (41%). 

The amount of foreclosure auctions by loan type also varied last quarter. The amount of loans financed by the USDA or VA stood at 4% and 5% respectively. Loans held by a GSE (Fannie Mae and Freddie Mac) accounted for 29% of the volume; FHA loans accounted for 36%; and private-portfolio loans accounted for 37%. 

The foreclosure sale rate, which indicates demand at foreclosure auctions, stands at 61% and is well above levels seen last year when it stood at 55.1% and pre-pandemic levels when it stood at 38% during the third quarter of 2019. 

States with the highest foreclosure sales rates in Q3 2021 were: Idaho (100%); Arizona (83.1%); California (80.8%); Texas (80.1%); Georgia (76.7%); and Delaware (76%). 

The report also found that 80% of auction buyers are doing so within driving distance of their current home, or about 100 miles, it also found that demand for remote bidding is also growing. 

In the 1,000 counties or so that allow remote bidding, it seems that while remote bidding expands the footprint of a foreclosure sale, 83% of remote bidders are still purchasing a foreclosure within 100 miles of them. 

The average sale price of a foreclosed home also rose over the last few months. Last quarter, the average auction price of a home rose to an eight year high of $167,503, up 15 percent in Q2 and 42% year-over-year. As a result, Auction.com found that 47% of auctions produce surplus funds which can be returned to the foreclosed homeowner. The average surplus rose to an eight-year high of $44,659, up from $34,494 last quarter. 

“The more than eight-year high in average sales price came even though most foreclosure sales during the pandemic have been on vacant or abandoned properties exempt from the foreclosure moratorium—a trend that continued in Q3 2021,” the report said. “Properties purchased by third-party buyers at foreclosure auction it the third-quarter sold for 67.7% of their estimated after-market value—the estimated market value of the property in move-in-ready condition with no major repairs required.” 

“This was down slightly from 68% in the previous quarter but still up from 62.8% in Q3 2020 and up from the pre-pandemic level of 61.1% in Q3 2019.” 

Click here to view a complete copy of the report. 

About Author: Kyle G. Horst

Kyle G. Horst is a reporter for DS News and MReport. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at kyle.horst@thefivestar.com.
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