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More Than 30% of Distressed Property Buyers Anticipate Price Declines

In Auction.com’s 2023 Buyer Insights report, it has been found that nearly one-third (32%) of distressed property buyers surveyed expect home prices to decline in their local housing market in 2023, nearly double the 17% who expected home prices to decline in 2022.

The 2023 Buyer Insights report findings are based on a March 2023 survey of nearly 450 distressed property buyers from across the country who have used Auction.com to purchase homes at foreclosure auction or bank-owned (REO) auction in the last four years.

“Local community developers buying at distressed property auction are on the frontlines of the housing market, and provide a reliable barometer for emerging real estate trends,” said Jason Allnutt, Auction.com CEO. “They are telling us 2023 will bring further home price declines in many areas, but also increased opportunities to convert distressed properties into affordable housing supply as prices adjust to a new market-driven equilibrium.”

Despite rising expectations for a home price correction in 2023, 87% of buyers said they planned to increase or keep the same their property acquisitions for the year, up slightly from 86% in 2022.

Of those surveyed, 92% described themselves as either local community developers (77%) or owner-occupant buyers (15%). The owner-occupant share of buyers nearly doubled from the 8% recorded in Auction.com’s 2022 survey.

Data from Auction.com also shows that 82% of properties purchased on the platform in 2022 were within 100 miles of the buyer’s mailing address. The median distance between buyers and properties was 15 miles for homes sold at foreclosure auction and 21 miles for homes sold at real estate-owned (REO) auctions.

“We have a lot of military buyers here, and it’s hard to find them affordable, updated homes in a timely manner,” said Julie, a New Mexico-based buyer. “My investing is helping provide renovated, updated homes to people that would have to rent otherwise.”

Zeroing in on regional buyers, buyers located in the Western region of the U.S. were the most bearish about home price appreciation in 2023, with 43% saying they expect home prices to decline for the year. That total was up from just 7% in the 2022 buyer survey, and it was the highest percentage of any U.S. region. Thirty-seven percent of buyers in the Southeast U.S. said they expected home prices to decline in their local markets, the second highest percentage among the U.S. regions, and up from 12% in the 2022 survey.

Buyers were most aggressive in terms of 2023 acquisition expectations in the Western and Southeastern parts of the nation—the two regions with the highest share of buyers expecting a home price correction in 2023. Ninety percent of buyers in both regions said they expect property purchases to increase or remain the same in 2023.

More distressed buyers are shifting to a renovate-and-rent investing strategy in the slowing 2023 market, even while renovate-and-resell remains the dominant strategy. Half of all buyers surveyed said that renovating and reselling to owner-occupants was their primary investing strategy, down from 61% in 2022. Nearly 40% of buyers surveyed said renovating and holding for rental was their primary investing strategy, a total up from 32% recorded in Auction.com’s 2022 survey.

In terms of budgeting for renovations, 88% said they typically spend $10,000 or more for renovations on properties purchased on Auction.com, while 47% said they typically spend between $20,000 and $50,000 on renovations. The average sales price for properties sold on Auction.com in 2022 was $178,000. The typical renovation budget skewed slightly higher for buyers whose primary investing strategy is reselling to owner-occupants, with 53% of those buyers spending between $20,000 and $50,000 on a typical renovation, compared to 46% for buyers whose primary strategy is holding for rental.

A majority of buyers ranked “Making Money” and “Building Generational Wealth” as one of their top three motivations for investing in real estate. Nearly half of buyers (47%) ranked “Improving Neighborhoods” as a top-three motivation, while both “Expanding Homeownership” and “Providing Affordable Housing” were top-three motivations for more than one-third (38%) of buyers surveyed.

More than 200 of the 448 buyers surveyed provided a short story of how their investing is helping communities through an optional open-ended question at the end of the survey.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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