Q2 Auction Demand Slips as Retail Inventory Rises
Industry Update
July 26, 2024
Source: Auction Market Dispatch
Q2 Auction Demand Slips as Retail Inventory Rises
After a strong showing in the first quarter of 2024 — and well into the second quarter — demand for distressed properties sold at auction showed early signs of slipping in June even as the supply of properties available at auction continued to contract, according to proprietary data from Auction.com, the nation’s largest distressed property marketplace that accounts for nearly half of all properties sold at foreclosure auction nationwide.
Although one month’s data is not yet a trend, the demand slippage in June could be an early indication that local community developers buying at auction are becoming increasingly wary of rising retail inventory, which represents competition for the renovated homes they sell or rent back into the retail market — typically within six months of buying at auction.
“I do feel like the retail market has softened,” said Tony Tritt, a local community developer operating in Northwest Georgia who renovates and resells properties he purchases at foreclosure auction, mostly to owner-occupant buyers. “I would expect a longer time horizon to get (my renovated properties) sold because they aren’t flying off the shelves like they used to.”
If it continues past June, the demand slippage from buyers like Tritt could also foreshadow a slowdown in retail home price appreciation. Because buyers at distressed market auctions are anticipating retail market conditions three to six months into the future, bidding behavior at those auctions provides a reliable forward-looking indicator of trends in retail home price appreciation.
Demand Slips from Multi-Year Highs in Late Q2
Thanks to strong performances in April and May, most demand metrics at auction show strengthening demand for the second quarter overall compared to the previous quarter, but monthly data reveals a clear downshift in June for many demand metrics, including bidders per property, sales rates, and winning bid-to-value ratios.
The average number of bidders for each property sold at bank-owned (REO) auction in the second quarter was down 2 percent from the previous quarter but still up 3 percent from a year ago. But in June that bidders-per-property metric dropped 17 percent from May and was down 3 percent on a year-over-year basis.
The sales rate at foreclosure auction (the share of properties available at auction that sold) increased in the second quarter, both on a quarterly basis (up 5 percent) and annual basis (up 4 percent) but decreased 4 percent in June from a 25-month high in May. The June sales rate was still up 3 percent from a year ago.
A similar pattern of June demand slipping from a nearly two-year high earlier in the quarter shows up in demand metrics related to pricing — both for foreclosure auctions and REO auctions.
Winning bidders at foreclosure auction in June were willing to pay 58.7 percent of a property’s estimated after-repair value on average, down from a 25-month high of 60.7 percent in April. Winning bidders at REO auction in June were willing to pay 58.6 percent of a property’s estimated after-repair value on average, down from a 25-month high of 61.7 percent in April.
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