This article is part of our 2022 – 2023 Real Estate Market Forecast Series. After the series ends, join us on February 6 for the HW+ 2023 Virtual Forecast Event. Bringing together some of the leading housing economists and researchers, the event will provide an in-depth look at the predictions for this year, along with a panel discussion on how this insight applies to your business. The event is exclusive to HW+ membersand you can go here to register.
Buyer behavior in the Auction.com platform offers one of the best barometers of retail real-estate market because the success and livelihood of these shoppers depends to a large extent on them accurately anticipating what the retail market will be like in the next six to 12 months.
These buyers are primarily local community developers who purchase distressed properties and then resell or rent them on the retail market after rehabilitation, a process that typically takes six to 12 months.
Here’s what second-half 2022 shopper behavior tells us about two key retail market trends in 2023:
one. Home prices likely to correct across the country and in most markets
Foreclosure auction buyers on the Auction.com platform bought at an average discount of 29% below estimated “as is” market value in Q4 2022, an increase of 23% in Q3 and a increase from the pandemic minimum of 9%. in the first quarter of 2021. The average purchase discount of 29% was also well above the pre-pandemic average of 22% between 2015 and 2019.
The rapidly rising average purchase discount indicates that developers in the local community anticipate a rapid slowdown in home price appreciation over the next six to 12 months. The higher discount gives them a bigger cushion to protect themselves against this slowdown.
The fact that the median discount in the fourth quarter of 2022 was seven percentage points higher than the pre-pandemic average suggests that buyers expect home price appreciation to be negative given median home price appreciation. housing between 2015 and 2019 was just 5.4 percent, according to ATTOM Data Solutions. .
Nationwide, Auction.com buyer behavior indicates a negative home price appreciation of less than 5% in 2023, but the risk of a more severe price correction in 2023 is higher in some local markets where the The average foreclosure auction purchase discount in the fourth quarter of 2022 was well above the pre-pandemic average.
Among the 80 metro areas with sufficient data in the fourth quarter of 2022, those with the largest increase in purchase discounts relative to their own pre-pandemic averages were Jacksonville, Fla.; The Angels; San Diego; Minneapolis-St. Pablo; and Riverside, Calif. The average foreclosure auction purchase discount in these five markets was at least 19 percentage points above the pre-pandemic average.
Foreclosure auction buyer behavior indicates a potential home price correction by 2023 in 50 of the 80 markets, but some notable exceptions include Chicago, Philadelphia, Virginia Beach, Virginia, Cincinnati and Miami.
2. Home sales bottomed out as sellers finally capitulated on price
Auction.com buyers demand a higher discount on distressed property purchases and are willing to abandon a bid when they can’t get that higher discount. This is evident in the foreclosure auction sales rate data from the Auction.com Platform. The sales rate, simply the percentage of properties available at the foreclosure auction that end up selling, dropped rapidly in the second half of 2022 after an earlier spike in the COVID-19 pandemic.
While still above pre-pandemic averages, this rapidly falling sales rate signals a paradigm shift from the seller’s market to the buyer’s market. This paradigm shift is being reflected in the retail market in the form of a plummeting home sales, which had declined for 10 consecutive months through November 2022, the longest series of consecutive declines on record, according to data from the National Association of Real Estate Agents (NAR). go back to 1999.
The shift to a buyer’s market is primarily driven by rising mortgage rates. Assuming mortgage rates don’t drop substantially in 2023, sellers will eventually have to capitulate on price to adjust to this new reality.
Retail sellers tend to take longer to adjust prices because of their emotional connection to the property, but distressed sellers don’t have that emotional connection and are generally more responsive to market conditions. Sellers on the Auction.com platform are already showing some early signs of proactive price adjustments, a trend likely to be reflected in the retail market in 2023.
Foreclosure auction sellers set their offer of credit, the minimum amount they will accept to sell the property, at 70% of the average estimated “as is” market value in the fourth quarter of 2022, down from 73% in the previous quarter and down. from a pandemic peak of 83% in Q4 2020. The average credit offer of 70% in Q4 2022 was the lowest level since Auction.com data is available, Q1 2012.
As retailers finally follow the lead of struggling sellers and adjust their lower listing price in 2023, home sales will bottom out and begin to rise again, most likely in the second half of the year.
This column does not necessarily reflect the opinion of the HousingWire editorial department and its owners.
To contact the editor responsible for this story:
Sarah Wheeler in [email protected]
