EPISODES
Episode 37.
Daren Blomquist, VP Of Market Economics at Auction.com
Darren Bloom Quist, VP of market economics at Auctioncom, truly one of the brightest minds I know in the space. If there’s a question about foreclosures, he has the answer. This episode was a blast and it flew by, so buckle up. This is the real estate of things. I’m Dalton Elliott. Thanks for listening. You’re listening to the real estate of things podcast. Welcome to the real estate of things podcast. I’m your host, Dalton Elliott. Very special guest today, one of my favorite people in this whole industry to speak with. Genius, I think, is what’s on his business card. But Darren Bloom Quist, vice president of market economics at Auctioncom. Darren, I cannot thank you enough for taking some time to chat with me. Oh Wow, that you’re too kind. I appreciate being here. Thank you, I would. When your email came through saying hey, you want to be on the PODCAST, I was. I jumped at it, happy to be on. Love Your love what you’re doing over there and love your audience. Your audience is a lot of our customers who are buying off of auctioncom. So we we love to talk to them and hear what you’re hearing and and share what here we’re hearing as well. Yeah, beautiful, and for anyone listening, if you’re not following Darren on Linkedin, make sure you go do that. I’d one of my favorite thing is about scrolling through Linkedin, whether it’s a minute at the office or when I’m playing in bed at night. Can’t get any sleep as any time I run across a deer and post, I stopped and I know I’m going to be a more intelligent human after I’ve finished downloading the information that’s there. What whatever information I can actually understand from it. You do a great job of putting putting out good tangent data and concepts and and you mentioned Actioncom, so let’s kick it off. Just give me some background of you and AUCTIONCOM. I’m sure everybody listening is heard of auctioncom to yeah, I mean, and if you haven’t, welcome to you to Auctioncom, where we’re a site that that auctions off residential real state and specifically, the two main types of auctions that we do are for closure auctions, which we markt those properties, and in some states those are online auctions, but in most states those actually the actual auctions occur at the court house. You physically go there, although we can talk about this where we’re introducing technology called remote bid. Actually we have introduced it, where you can participate in those courthouse auctions from your phone, so you’re not having to go to drive anot the car house. That’s I won’t get into that right now, but that’s one type of auction. The second type of action are the bank owned or Orio auctions. Those are typically all online. That’s after the property has been for closed, its owned by the bank and and so, yeah, that’s what we do and we pride ourselves in doing a ton of transactions, being the largest player in this space and really disrupting this space, since we’ve been in it, really in the foreclosure auction space, since two thousand and twelve, and making the foreclosure action a true market place rather than just a place where it was kind of hidden and you had to be kind of in the know in the local market to actually transact there, and there was collusion and that sort of thing going on. So we’re trying to disrupt all that and make it a true market place. Yeah, I before we dive into the meat of for closures right now, you brought up one point that any time I hear to think about it, it frustrates me a little bit. It’s like, why do we have to physically show up at a Saturday morning with a cashier’s check something if I’m going to an auction? Why in the world is it taking forever for that part of our space to advance…
…to just sitting behind a computer or what you do at auctioncom right, that platform, that ease of use. I guess that’s one question in the second one is when is it going to catch up to where I can sit at home and any foreclosure property anywhere, I’ll be able to just ebay it up? Yeah, I mean you’re you’re speaking our language right there. I mean that’s that’s one of the top five questions we’re asking every day is how can we move this process into the twenty one century, you know, move it into the s at the very least. Welcome to the S, Mr for closure, but it’s these for closure is is a state run process, so it’s leges, it’s a governed by state regulation, State Law, and these are laws that are written. I mean, you talk to some of our guys on the ground, it’s laughable. So some of these laws are written in the eighteen hundreds and they were, you know, they’re based on thing, on people not having even cars, on using horses and things like that, and so we’re trying, we’re trying to update that. It’s it’s certainly not a huge hot political item that a lot of politicians want to run on. Oh, we’re going to update the fore closure laws. So it’s a little hard to make progress there, but we’re pushing it as hard as we can. In this remote bid that I mentioned is actually an attempt to do that outside of not not in a legal way, but it’s outside of the law and saying, okay, here’s the laws, you do, there’s the law says there has to be this physical, in person for closure auction, but what we’re going to do is allow people to interact with that physical, in person auction through their phone. And so it’s really amazing and it’s the legit sticks of it are, you know, our team, and I can’t claim credit for it, it’s our team is is doing an amazing job. Is You’re on your phone, the auctioneer at the auction is lit is doing the auction, taking bids from people who are there physically at the auction, but also bids that are coming in over our APP they’re taking those as bids as well, and so that’s one way that we’re trying to disrupt that and make it so you can sit at your house or your work or wherever and bid on properties without, you know, going to the auction. And you know, a lot of these properties, these auctions are canceled at the last minute and most of them are actually not on a Saturday, as you said, most of them are during the week during business hours, because that’s when the government workers are working, and and so we’re trying to do that. We’re seeing it’s not available in all counties, but we have it available in about a thousand counties nationwide, that remote bit option. So we’re really proud of that and we’re seeing uptick on it. And what it kind of the the added benefits that we actually didn’t even foresee is that we launched this and I think a march of two thousand and twenty, right around the pandemic, and so one advantage has been, you know, you don’t have to be in a crowded space. Some of these auctions are in crowded rooms to interact, and the other added benefit that we’ve found that that we didn’t really foresee is people who are new to the auction process, it’s intimidating, and so you go to that in person auction, you see all these people who see know what they’re doing and you’re out of it and you’re like I have you know, I I’m intimidated by by these veteran investors, which we love the veteran investors too, but it gives those newer folks a chance to participate without…
…necessarily that intimidation factor plane. And so anyway, that’s one way, I mean. And then areo auctions are online, which is so you can do that from anywhere and they’re over a peer. They’re not at a specific limited time. The foreclosure actions are usually over a have to be held within a four hour period. That the online auctions are usually over a week. So you have more time on this. Got It. Keep doing what you’re doing, keep dragging it from eighteen century to twenty one century. It’s happening bit by bit, but digging, digging deeper here. So you and I chatted. You mentioned before real estate of things podcast existed at Leama one. You were kind enough right around two years ago. Crazy to think how much has happened since you and I last had that conversation. But we talked and one big topic was foreclosures. Maybe have foreclosure moratoriums nationwide. I’ve talked to me about, you know, investor expectations at that time like there’s this moratorium and then as soon as these start to lift there’s gonna be a massive influx of foreclosures. So talk to me about how that has actually panned out and what the foreclosure market looks like right now and where we’re heading with it. Yeah, there was a lot of uncertainty right around the time that. I think we talked, and investors are in certain we saw well, I’ll dress this two ways, in terms of supply and then demand. In terms of supply of for closures, those, you know, those dropped almost none in the first few months after the pandemic hit, and our platform accounts for roughly forty to fifty percent of all for closure actions taking place across the country. So we’re definitely good, good barometer of what’s happening. And the way I look at it is is percentage of I’ve benchmarked to q one hundred and twenty, first quarter of two thousand and twenty and if we look at the the volume for colude are foreclosure volume relative to the first quarter of two thousand and twenty, really before the pandemic hit, it dropped to close to five percent of that level in the second quarter of two thousand and twenty and then it has gradually increase since then and now, in this first quarter of two thousand and twenty, two two years later, we’re we’re seeing a pandemic high in terms of foreclosure volume. However, that said, we’re still at forty nine percent of q two thousand and twenty levels, so we’re still half, halfway below half of the the two thousand and twenty levels or q one hundred and twenty and twenty levels. So in terms of supply, that supplies definitely coming back. If you look at some of the foreclosure starts numbers from from other organizations, you’re seeing eye popping percentage increases of hundreds or even thousands of percent and for closure starts, and so I don’t but even with this percentage increases, I won’t even describe this as a wave of for closures. I would describe it as a gradually rising tide, because we’re not even back to the the pre pandemic levels in terms of supply, but it is coming back. And then in terms of demand, we saw demand drop off. It was that V shaped thing that we saw in the early months of the pandemic where the demand metrics we look at on our on our website, which our sales rate and price execution relative to the credit bid, those dropped off for a month or two and then they came roaring back and I investors realized, okay,…
…this is still a great, fundamentally sound market to buy in and there was limited supply of the distress property specifically to buy it a discount, and so demand came roaring back and we’re seeing demand metrics that we’ve never seen before, even before the pandemic, in terms of the percentage of properties that are selling and the price points are selling at, which may not always be good news. They’re still selling below after repair market value. There’s still an opportunity for investors there, but that has narrowed a little bit geographically. Or there any markets that are well abolve or below kind of capture your attention when you kind of peel back the layers of data, either on the supply or demand side. Yes, yeah, and this is maybe a maybe we can throw up this slide potentially, or you can go to two auction conferen session the news to get this. But why have a heat map showing where, where we’re in the first quarter, by state, where we’re seeing for closure volume come back the fastest or and the slowest? And Basically, I bench bark again, to twenty four first quarter, to two thousand and twenty levels. And when you look at that, so the on the heat map, the green picture this in your mind. The green is is where we’re seeing that the numbers come back faster, and the green is mostly in the midwest and the rest belt. A prime example is the state of Indiana, which actually in the first quarter was at a hundred and eight percent of its pre pandemic levels, so it actually was above prepandemic levels, even though the entire countries at half half of its prepandemic levels. Another one that stands out its Oklahoma, ninety eight percent of pre pandemic levels. But then on the other end of the spectrum, if you look at this, we’re seeing states, states like New York is a prime example, at thirty thirty two percent of pre pandemic level. So it’s below that national average. It’s coming back slower, which we kind of suspect with a state like New York, to be honest. And let’s see here. Yeah, it’s some in the northwest, like Oregon is at thirteen percent of pre pandemic levels. Now some of the high volume states are kind of in the middle. California is at forty two percent of of prepandemic levels. Florida’s at forty six percent of prepandement levels. Texas actually is a little bit lower. It’s twenty thirty percent or prepandemic levels. So there’s definitely a mix depending on how the state is, the foreclosure process works, whether it’s through the courts or outside of the courts, and also just state level regulation or state run level legislation that maybe has impacted the foreclosure process during the pandemic, slowing it down. We are diff seen different levels of volume return. Do you think there are? How do you think we as a country? And you can pick specific states or markets, but how do you think the foreclosure moratoriums work? Like would you grade them? And that process, you know, ABCD, pick another scale to grade it, Bible like. How do you how do you think our collective reaction to covid and the concerns around housing. How do you think that pand out now, when we have, you know, Hindsight Two Thousand and twenty? Yeah, that’s a great question and I would I would grade it probably a be I’ve in some ways it accomplished. The foreclosure moratorium combined with the forbearance program really accomplished…
…what it set out to do, which was to prevent some kind of this the pandemic, from triggering a crisis situation and a wave of foreclosures all of a sudden hitting. It gave it gave people time in this period of uncertainty to respond to the shock, to make sure that they were okay and not just, you know, fall into foreclosure because of this this and foreseeing kind of natural disaster. And I would I would I would like in the pandemic more to a giant national natural disaster, as opposed to what triggered the housing the recession and the housing crisis back in two thousand and eight, which is a whole different other set of things, kind of internal. This was more of an external shock. And the great thing is that the end of the mortgage industry had kind of refined their response to natural disasters and and preventing just these knee jerk for closures from happening in some of the flood the hurricanes and floods that had happened in Texas and Florida in two thousand and seventeen. So I would write it to be in terms of really preventing a crisis that would have potentially brought down the housing market with it. The reason I go be instead of a is I think that it was a it was a blanket more touring for the most part. The one thing that they did really well was they exempted vacant and abandoned property, so vacant and abandoned properties or abandoned properties could be for closed on. So we that’s why we saw an increase in volume even during the moratorium. Is The servicers were able to figure that out and say, okay, for sure these properties are bacon or abandoned, we should move forward. That was a really smart move to because those properties just sitting there and it represents supply that the market me desperately needs and if they’re just sitting there there’s creating potentially creating more blight. So that was a good move, but then I would say it was still a little too blanket of a moratorium and lasted just a little too long out of an exercise of caution. And what it what it has done is it has contributed to the lack of supply in the country because for closures they’re not a huge source of supply, but they’re an important source of supply for investors who are renovating those properties. They’re often not. It’s not just the vacant and abandoned ones, but the other ones are often very close to being uninhabitable, and so investors are taking what’s inventory, that’s really not viable inventory, and converting that to inventory. That’s great, and we see actually most of our properties that are resold by our buyers are sold to owner occupants, and so by holding on to that more torm we believe a little bit, I believe personally, a little bit too long, it has contributed to this supply shortage in a small way. Let’s keep on that topic. The supply a shortage piece, because there are so many factors contributing to it. You had effectively over building pre great recession, right, and then you have real estate crash and building just drops like a rock and the ten years, the next ten years, like trailer leading up to Covid, construction was just slowly creeping its way back up and it wasn’t even close whenever covid broke out. Wasn’t even close to pre great recession levels. So we were not overbuilding, we were, if anything,…
…underbuilding leading into covid. And then covid hit. You have lockdowns that just scraped everything for a long time and as we sit today, all of the issues that affect every part of you know, a consumers life, supply chain issues, parts, labor, all of these problems. A permitting is taking way longer in most markets than it did pre covid. All of these contributing factors that continue to keep supply suppressed. Do you have any finger on the pulse of whenever we’re going to have, you know, a healthy six months supply of housing? Yeah, that’s a great question and we do see it on that new home side. The supply coming back now. Part of that is supply chain problems, is that it’s holding up some of the supply in construction and there, you know, and they’re not in the builders have stopped selling some of their properties before they’re completed construction because they are so far behind. But we are seeing this supply and in the new homes market at six have hovering around that kind of balanced six months of inventory for the last few months, so that’s kind of an early sign. Usually the new homesale market is is a leading indicator of the existing home sales market. But yeah, we’re still at, I believe it’s around two months or less supply at the in the existing home sale market and it did tick up a little bit in April, which is good, and I mean I think the best thing that can happen is we see that that balance come back to the market, which puts down more pressure on home price appreciation, which is gotten out of control. As to win that will happen, it’s hard to say. I would I would guess my best guest would be by the end of this year. We’ll see that. I mean the combination of the builders have definitely ramped up supply during the pandemic. That takes a while to make its way into the market. Then you do have the you know, the foreclosure mark time has been lifted, so that’s one small source of supply. I think we think it’s an important sources supply and then that, combined with cooling demand we would expect to see as a result of rising mortgage rates, should help to balance things out by the end of this year. We that demand really hasn’t cooled too much, but there are some early signs that were starting to see that cool certainly on our platform we’re seeing investors still very strong demand from our investors and we actually surveyed our investors just recently and what was really interesting was that over half of our buyers describe their market is overvalued, with the correction possible. So they they see that there’s some froppiness in this market because of their rapid home price appreciation, but then they there’s they’re still super confident about selling into this market because and so the evidence of that is that eighty six percent of them say they’re planning to increase or keep the same their property acquisitions this year compared to last year. So and so and when I talked to him. I’ve talked to a few just individually to get more color, and this is kind of varying off a little bit from your original question, but I think it’s important because I see our investors as a leading indicator and they’re always…
…looking out six months ahead into the market what the markets going to look at like six months from now. And so they do see there’s an increased risk of a slow down in home prices and even a potentially a correction and some markets. But they’re confident because the type of inventory they’re dealing with is inventory that’s on the lower, more affordable tier of the market, which the demand for that is typically more solid. And secondly, I would say, well, there’s three things. Is Secondly, they because these are distress properties, are adding value through renovation, which is not as dependent on home price appreciation. They can still actually make a profit even if phone prices don’t go up in a lot of cases. And and the third thing is the rental market is so strong. So even though most of our buyers their primary strategy is renovating and reselling, they have that they can hold those properties as rentals if they need to and softening market and the rental market is still very strong. So that’s what gives them the confidence. That’s promising to hear that feedback from you or base. And Yeah, the we didn’t even touch all it and we don’t have enough time to but the rental side of the ends why HPA gets makes a lot of the noise. But you know, I think rental appreciation is something that covid at the the crazy rates of growth, has become a headline as well. So definitely. But, like you said, the silver lining there from an investor standpoint is that you have flexibility of optionality and whenever you have a decent bit of uncertainty in the market because you have so many variables changing and shifting all over the place, where it’s rates, HPA is going to cool off? Is it going to keep on exploding ahead, supply chain, labor issues, go down the line, optionality with how you can dispose of a property or just pivot your strategy. That that has, to you said, add some certainty from an investor standpoint and definitely feeds into the confidence that kind of you saw whenever you survey your base, Darren. Yeah, and that was that survey was in March. So is it is for the recent yeah, okay, cool. Never enough time, my friend, we have. I’m already thinking like when, how soon can I get you back on for another episode, and I appreciate you jumping on here so quickly. Always a pleasure to chat with you. Auctioncom the best, the best company name in the in the industry, all right, like auctioncom tells you everything you need to know right out of the gate. Darn. Thank you, my friend. I really appreciate you. Thank you, Dalton. Pleasure to be here. Thanks everyone for listening. Take care. Thank you for joining us today on the real estate of things podcast. Subscribe and tune in weekly for new content from the industry’s best while we continue to unpack the nuances of this dynamic market. Follow US across social media for additional insights and analysis on the topics covered in each episode, and remember to rate, review and share the show.
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