Foreclosure auction data provides a view of which real estate markets are most popular with investors and which markets are potentially most profitable for investors.
Data from the fourth quarter of 2022, with the housing markets in the throes of a slowdown, helps shed light on which markets investors think will withstand the continued slowdown expected in 2023 and which markets provide the biggest potential discount cushion to hedge against such a slowdown.
The most popular markets for investors are those in which the sales rate at foreclosure auction in fourth-quarter 2022 was furthest above its pre-pandemic level in fourth-quarter 2019. These are markets where investors are still willing to buy a high percentage of distressed properties, anticipating that local housing trends will hold up well enough in 2023 for them to realize a healthy return when they resell or rent the rehabbed homes.
The most potentially profitable markets are those in which investors purchased the furthest below estimated “as-is” property value in fourth-quarter 2022 relative to pre-pandemic purchase discounts in fourth-quarter 2019. A discount below that estimated value may be seen in the foreclosure auction context since buyers are taking on a significant risk in purchasing a distressed property with cash and without an interior inspection.
A transparent auction marketplace like Auction.com leverages real-time, competitive bidding to reveal each property’s true, risk-adjusted market value, limited only by the foreclosing lender’s credit bid: the minimum amount the lender is willing to sell the property for, capped at the total debt owed. These are the markets where investors have the biggest cushion to realize healthy returns in 2023, even if local housing trends represent a headwind for their resale or rental exit strategies.
Most Popular Markets
Here are the top 10 hottest markets based on each of those two criteria among 60 U.S. metros with the most foreclosure auctions occurring in fourth-quarter 2022, according to data from Auction.com.
With a couple of notable exceptions, real estate investors flocked to middle-America, safe-haven markets in the fourth quarter of 2022. The market with the biggest increase in sales rate in fourth-quarter 2022 compared to fourth-quarter 2019 was the Quad Cities (Davenport, Moline, Rock Island, and Bettendorf), straddling the Iowa-Illinois border. The foreclosure auction sales rate of 55.6 percent in the fourth quarter of 2022 in the Quad Cities was up 38 percentage points from the 17.2 % level in fourth-quarter 2019.
Other middle-America markets in the top 10 for biggest foreclosure auction sales rate increase in fourth-quarter 2022 included Milwaukee, Wisconsin; Peoria, Illinois; Louisville, Kentucky; St. Louis, Missouri; and Baton Rouge, Louisiana. The sales rate in fourth-quarter 2022 was up at least 20 percentage points from fourth-quarter 2019 in all these markets.
Two notable exceptions to the middle-America theme were Boston, which saw a 31-point increase in sales rate, and Miami, which saw a 21-point increase in sales rate.
Most Potentially Profitable Markets
Nationwide, real estate investors purchased foreclosure auction properties at an average discount of 17.2% below estimated “as-is” market value in the fourth quarter of 2022, according to Auction.com data. That average discount was 7 percentage points higher than the average purchase discount of 22% in fourth-quarter 2019.
But investors were able to build in a bigger discount cushion relative to pre-pandemic levels in many markets. At the top of that list was Los Angeles, where the average foreclosure auction purchase discount in fourth-quarter 2022 was 24 percentage points higher than in fourth-quarter 2019.
Other West Coast markets in the top 10 in terms of increase in foreclosure auction purchase discounts relative to pre-pandemic levels included Riverside-San Bernardino, also in Southern California; San Francisco; and Portland. Seattle came in just outside the top 10, at No. 11.
Remaining markets in the top 10 were Minneapolis-St. Paul; Jackson, Mississippi; Birmingham, Alabama; Boston, Massachusetts; Nashville, Tennessee; and Knoxville, Tennessee. Boston stands out for making both top 10 lists, both in terms of investor popularity and in terms of potential profits.
Daren Blomquist is vice president of market economics at Auction.com. In this role, Blomquist analyzes and forecasts complex macro and microeconomic data trends within the marketplace and industry to provide value to both buyers and sellers using the Auction.com platform.
