The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
In my latest podcast interview, I’m speaking with Daren Blomquist. Daren is the Vice President of Market Economics at Auction.com — the nation’s largest online real estate transaction marketplace focused exclusively on the sale of bank-owned and foreclosure properties.
His job is to mine real estate data for key insights and trends to help businesses and consumers make better decisions.
On this episode of the Accelerated Real Estate Investor podcast, we dive deep into the data to better understand where the biggest real estate investing opportunities lie.
We talk about job growth, population migration & affordability, the uptick in foreclosure auction activity, the types of properties that are being foreclosed on, and much more!
For those of you who normally only listen, definitely check out the YouTube video of this conversation, as Daren walks us through a full presentation and shares a ton of visual aids and interactive maps to analyze trends in the real estate market.
Key Takeaways with Daren Blomquist
- How investors are leveraging Auction.com to invest in real estate.
- Analyzing the unemployment rate post-pandemic and its impact on investors.
- Discover which areas of the country present the biggest opportunities for real estate investors! Daren shares a heat mapping tool to help you understand population migration & affordability.
- The 3 waves of possible foreclosure inventory over the next year.
- The number of FHA delinquent residential properties.
- Find out where and what types of properties are going to foreclosure.
- Uncovering renth growth rates and the hottest areas to own a rental property
- Learn how to use Auction.com to conveniently bid on house foreclosures remotely.
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Click Here to Read the Transcript with Daren Blomquist
Josh Cantwell: So, hey, guys, welcome back. This is Josh with Accelerated Real Estate Investor. Listen, quick intro today. I am doing a very special podcast interview with Daren Blomquist. He is the Executive Vice President of Market Economics at Auction.com. He is essentially their Chief Economist. I bring him on once a quarter. We’ve been doing it for over five years and he’s going to talk today about a few things. Number one, we’re going to talk about job growth. But what’s interesting is you’re going to hear that the number of jobs available is exactly the number of people who are unemployed. Literally, the ratio of unemployed to job openings is 1:1 so people need to get back to work. Number two, we’re going to talk about population migration and affordability. Number three, we’re going to talk about the three waves of possible foreclosure inventory coming next year in 2022. Number four, we’re going to talk specifically about the number of FHA significantly delinquent residential properties. That’s the number one area where there’s the most distress is in FHA. We’re also going to talk specifically to a number five about the uptick in foreclosure auction activity and the end of the eviction and the foreclosure moratoriums. And finally, we’ll discuss what types of properties are being foreclosed on. No surprise here. Primarily, it’s a retail and office and industrial where people left and did not go during the pandemic.
So, I’m so excited to be on again today with my friend, Daren Blomquist, VP at Auction.com. I hope you enjoy this interview on the Accelerated Real Estate Investor Podcast. Here we go.
Josh Cantwell: So, hey, guys, welcome back to Accelerated Real Estate Investor with Josh Cantwell. So, excited that you could join me. For all of you guys that have engaged in our Facebook groups online and our social media platforms, receive my emails, thank you so much for engaging in our webinars. I have a special treat for all of you, guys. Once a quarter I bring back my good friend, Daren Blomquist, who is the Vice President of Market Economics at Auction.com. Auction.com is one of the major, major players not only in selling properties on their platform but also in providing data to major institutional players as well as mom and pop investors, both residential and commercial. Daren and I were talking before we hit the record button. We’ve been doing this now for over five years at my live events and on our podcast. Daren has been a regular contributor not only to our podcast but also to major, major news outlets like CNBC, Squawk Box, and Fox News. They all rely on this data aggregation that he does at Auction.com in order to get some insight on what’s going to happen with the market and talk a little bit about what might be happening down the road. So, it’s always a pleasure, Daren, to welcome you back to the show. Thank you so much for joining me.
Daren Blomquist: Thanks, Josh. It’s been great to be part of your universe over the last few years, and I always learn a lot as well on these podcasts.
Josh Cantwell: Yeah. Daren is an investor himself, continues to buy some properties for his own portfolio, and we’re always excited to have him aggregate this data for us. It does take a lot of work. By the way, they produce a lot of reports which are available on their website, Auction.com. Daren, is it still like the news, In The News?
Daren Blomquist: Yeah. That’s right. Exactly. If you want to see the reports I’m putting out, just go to Auction.com/InTheNews and a lot of the stuff we see here plus more stuff is on there. One of the things that we’ve been doing there that I think is interesting is we’ve been doing this video series called Disposition Download, which is actually geared toward our clients who are the banks selling these foreclosure properties but I think your audience would be interested. We have several of those where we do videos with our buyers who are buying properties actively, investors out there on the front lines, and there are some great stories there about we have a couple from Ohio that are great stories of how investors are leveraging Auction.com and other sources to invest even during the pandemic. So, some good stuff there.
Josh Cantwell: Yeah. Fantastic stuff, guys. Check it out, Auction.com/InTheNews. Daren is personally responsible for assembling that data and analyzing it and putting it out to not only major, major institutional players but thousands and thousands of residential investors, mom and pop investors as well. So, Daren, let’s go ahead and jump in. Let’s go ahead and talk first. Oh, by the way, I must tell my audience we’re catching this on audio only, let’s say on a podcasting platform, iTunes, where you get your podcasts. We are recording the screen as well and this is available on YouTube. So, go to YouTube and look for Accelerated Real Estate Investor with Josh Cantwell on YouTube and you can see the slides that we are going to share. Daren, today we’re going to talk primarily about jobs and then we’re going to talk a little bit more about the residential foreclosures that are going on. We’re going to talk a little bit more about the types of foreclosures, both commercial and residential. Talk a little bit about population migration and also affordability. And finally, at the end, we’ll talk a little bit more about where are the most foreclosures happening by loan type. So, that is on our agenda for today. So, Daren, let’s jump into slide number one and talk a little bit more about jobs. What is going on with jobs? Some interesting data around jobs available and the unemployed. So, tell us what you’re seeing right now regarding jobs.
Daren Blomquist: Well, we’ve seen the job market bounced back. You can see that V shape and the blue line early on in the pandemic where we saw some pretty good gains in jobs after the huge loss in March and April, especially April of last year, where we lost a lot of jobs, over 12 million jobs in one month there. But after that, the line is kind of leveled off. We’ve seen this and we’ve even seen a month of decreases in jobs but there’s been this slow, steady growth in jobs really over the last few months, six to nine months. June was actually a good month. We saw 850,000 new jobs added. So, we’re seeing this slow, steady increase in jobs now, which is good, but we’re still 6.7 million jobs short of what we were before the pandemic. And on the right-hand side, we actually are seeing not a lot of improvement in the long-term unemployed. If you look at that green line, that number of unemployed for 27 weeks and over, it started to come down but then in June, it bounced back. There’s a little bit of a bounce-back higher in that longer-term unemployed. So, we’ve seen some pretty good recovery that, in general, the economy has bounced back pretty well but we’re still a lot of jobs short of what we were prior to the pandemic.
And the next slide does show maybe some of the reasons behind that, why that’s happening. And on the left-hand side, you see the labor force participation rate has kind of stagnated. It dropped dramatically during the pandemic and it bounced back a little bit but we’re still not at the labor force participation rate that we were prior to the pandemic, meaning fewer people are out there actively looking for jobs and participating in the labor force. And that’s why we have these pretty low unemployment rates of 5.9%, still quite a bit above pre-pandemic. Pretty good unemployment rates but part of the reason behind that is because not as many people are participating and actually trying to look for jobs. And on the right-hand side, you actually see we’re at a point where the number of job openings almost equals the number of unemployed, which during the pandemic, you see the blue line number of unemployed spiked while the number of job openings dropped. But now those lines have almost converged, which means and this is something that’s somewhat puzzling economists and others out there is there are so many job openings and actually, anecdotally, you hear a lot about businesses having trouble finding people to fill those job openings.
And so, you have this interesting almost recovery from the pandemic is causing some problems that maybe were unforeseen. And one of those is a little bit of a labor shortage, which is maybe surprising for folks. And there are different reasons for that. There are different theories for that but at the end of the day, what it means for the housing market is that especially for people who lost their jobs and have not regained them and are homeowners and maybe taking advantage of the forbearance programs and not making their payments but still not being foreclosed because of the forbearance program and the foreclosure moratorium, when those protections end, those folks may be in trouble and we could see them. We’ll talk about this in a second but there is this underlying wave of distress that’s kind of been hidden from the market because of these foreclosure protections that we will see coming to the forefront, I think, in the next few months to a year. Now, it’s not going to be the type of wave we saw last time around, and we could talk about that more in a minute but it is there and these unemployment numbers speak to that as well.
Josh Cantwell: Yeah. Sounds like a couple of things, a couple of takeaways. Number one is that, like you said, the ratio of the unemployed to job openings is 1:1 meaning for everybody who is currently unemployed and seeking a job, which is 9.2 million people, there are 9.2 million jobs available so matching those people up with a job. But there is also a drop in the total labor force participation rate that matches slightly different data, which is those people seeking a job. And so, the total number of people seeking a job has dropped by a few points. So, there are less people seeking long-term employment in general. But for those people that are seeking a job that are currently filing for unemployment and claims that they’re looking for a job, there are roughly 9.2 million, 9.3 million unemployed and there are 9.2 million, 9.3 million job openings. So, we’ve just got to get those people to work in a job where their skill set will work for them. And interestingly enough, at the end of the day, there was a lot more people participating in the job market pre-pandemic and those people now, for whatever reason, are not getting back to work. And a couple of theories, one is jobs aren’t available that matches their skill set. Number two is they’re afraid to go back to work because there’s still some COVID out there and they’re scared for their health or they have a preexisting condition. Also, many people are working from home, kids not fully back into school. We are in the summertime where kids are home and so people can’t get back to work because kids are home from school.
So, I really think, Daren, in my opinion, what would really be a good time to look at this data is September and October when kids are back in schools. When kids are back in schools, it’s going to allow those parents to get back to work, and then we’ll see some normalcy because really in the last month or two, as we started to get back to normal, the mass mandates have come away in a lot of areas. Then all of a sudden, it was summertime and the kids are back home again. So, a lot of parents don’t want to go to work because their kids need daycare. They need care at home. So, kind of still a weird time because it’s summertime as we’re recording this. And so, I’m interested to see the next time we record, which will be in October, what happens in August, September, and early October when kids are back to school and thus the parents can get back to work, then we’ll feel like we’ll probably have some apples-to-apples comparison pre-pandemic. Let’s say January of 2020 versus October or even December of 2021. You might see some more apples-to-apples comparison because it still feels like we’re comparing apples-to-oranges in a lot of cases, doesn’t it?
Daren Blomquist: Yeah. Absolutely. I mean, unprecedented is an overused word with this pandemic but it’s certainly true, I think. It’s an environment we haven’t seen before.
Josh Cantwell: Yeah. Daren, I’ve got to tell you just this morning, switching on to the next topic, next slide, I have a rental property that probably five or six years ago I couldn’t give away for $80,000. There was nobody that wanted to buy it. I put it on the market on Wednesday for 124.9 and literally within a few hours got an over-asking price offer of 127. Full price, over-ask with no concessions, just paying the realtor commission normal closing costs. And so, there’s still a tremendous amount of there’s not nearly as many properties available. And so, this next slide I know we want to talk about people moving, population shifts, people moving to different areas.
Daren Blomquist: Can I ask what county that was in?
Josh Cantwell: That was in Cuyahoga County, Greater Cleveland. I was in a good part of Cleveland in what we call Kamm’s Corners, West Cleveland. And I saw on the purchase agreement that the buyer is moving from an apartment building. So, their current address is an apartment unit. So, they’re moving out of an apartment and buying this home that we’ve had as a rental property for over ten years. We put a little bit of money into it, not a ton, maybe about $5,000, some new flooring, some updates in the kitchen, some updates in the bathroom. Not a ton of money, but this house definitely shows nice. Both me and my wife are ecstatic that we’re able to sell this thing for 127 in one day and it’s going to close in early August. So, still, I think a big shortage of properties, people moving towards areas where properties are more affordable. So, tell us what is going on. Obviously, this map tells a story. What are we looking at relative to population migration and affordability? And this is going to give our audience some indication about where they should invest, where they could possibly be seeing some appreciation over the next couple of years.
Daren Blomquist: Yes. We see investors using our platform. Following these trends, we see a much higher sales rate on our foreclosure properties that we’re selling in our platform in these areas that have the positive net migration and are at least relatively affordable. And so, one of the things that encourage, for a very practical thing for your audience, is to go to this heat map. I have a link here. If you go to our In The News section, you’ll see this heat map as well. And you can actually filter this map and just show the areas that have positive net migration, which is the orange, and then different price points. So, that’s something you can go in and play around with to find the type of areas that may be good for your investment strategy and just starting with the top 26 counties with the most net migration meaning net migration is not including births and deaths. It’s just looking at people moving from county to county within the country and not surprisingly, Maricopa County, Arizona is the highest net migration. It added over 70,000 people in 2020. And then you have Clark County, Nevada. Maricopa County is Phoenix. Clark County, Nevada, which is Las Vegas and then you have a couple of counties in Dallas, in Austin, Texas, and then you have some counties in Florida, Lee County, and Polk County, and Pasco County, which I believe most of those are in the Tampa area.
So, you have these areas that are inland. Now, a lot of those areas are starting to get already pretty high priced. And so, I also then did another cut where we looked at areas that are having positive net migration but home prices are still below $200,000, median home prices. And when I talk to some of the investors, like I talked to an investor, for instance, who’s using our service in Chattanooga, Tennessee and he’s actually saying Chattanooga is a hotspot. It’s become overpriced for him. So, he’s starting to go to some of the counties around Chattanooga and then into Georgia, which is just across the state line to find these areas that people are moving to kind of like your rental property. They’re moving maybe from the urban areas out to suburban or even rural areas, and there’s 365 counties nationwide that fit the bill that have the positive net migration and are priced under $200,000. And so, you have places like, just some examples, there are Oklahoma County, Oklahoma, Oklahoma City, Tulsa County, Oklahoma, Guilford County, North Carolina, which I’m not sure what area that’s in but you have Sedgwick County, Kansas, which is Wichita. You have Ada County, Idaho, which is in the Boise area, Lake County, Indiana, which is Indianapolis. You have Butler County, Ohio is in the top 10, which is in your neck of the woods.
So, those are the type of areas where you’re actually seeing positive net migration, which is good for housing demand in the next few years but you’re also seeing maybe those places have not quite been discovered yet. So, there are opportunities in terms of a little bit lower prices.
Josh Cantwell: Yeah. That’s fantastic information, man. I mean, to get this on an interactive heatmap, which is, by the way, guys, you can get it on Auction.com. Go there. Check it out. And 365 counties that is there inside to be specific. We have a population migration of at least 10,000 gains in population, people that have moved in that area.
Daren Blomquist: Sorry. Actually, that first part, it just means they have a population, total population is 10,000. So, some of these are more rural but then they may have the positive…
Josh Cantwell: Net migration. More people in than out. Got it. The median home price below $200,000, which obviously makes it very cash-flow friendly for rental properties, flip-friendly. If you’re buying at below market value to be able to sell it to maybe a first-time home buyer or just at a very affordable price that a lot of people can afford and thus hopefully have multiple offers for multiple buyers when you’re ready to sell it. No surprise, Daren, that the top 15 counties with 10,000 negative net migration also were some of the most expensive counties in the country with an average home price of over $700,000, which for many average workers, very tough for them to afford.
Daren Blomquist: Yeah. And so, those are places just probably not a big surprise here but Los Angeles County, California is the biggest net migration loser. Cook County, Illinois and Chicago, Kings and Queens County, New York. Even Santa Clara County, California is in the top five there with the biggest net migration loss, which is in the Bay Area. So, people are moving out of those, especially since the pandemic has accelerated, and this is 2020 but pandemic has accelerated that move from these high priced areas because people now are more flexible to work from anywhere.
Josh Cantwell: And my understanding, Daren, I don’t think we have a slide on this but because the total number of properties on the MLS is down about 60%, at least the last time they recorded, it was down from over 3 million. Normally on the MLS down to about a million was down roughly two-thirds. A lot of people are still not necessarily selling because of the pandemic. Maybe they lost their job or they just don’t want to move because of COVID reasons. So, even in an area like Los Angeles or like the Bay Area, I imagine prices for homes are still going up because the economy is getting back on track and also because of the lack of inventory. So, even though people are moving out, prices are still going up because there’s just no inventory to work with. There are all these different levers that can be pulled. And normally you would think an area where people are moving out and they’re moving to more affordable areas, they’re moving to other areas with different environments, the prices would go down. If there were 3 million or 4 million properties on the MLS and the inventory of homes was normal, those prices might be stagnating or even going down because we’re losing population but because the number of properties totally available is way down over pre-pandemic levels, prices in those areas still keep going up even though they’re losing population. It’s a pretty wild environment.
Daren Blomquist: Yeah. That’s absolutely correct. So, even in these blue areas right now, the market is doing well, but more forward-looking, I think these are the markets that are more at risk over the next few years of starting to stagnate or possibly even seeing a correction.
Josh Cantwell: Fantastic stuff. So, I know, Daren, we talked about there’s possibly three waves of foreclosure inventory coming probably in 2022 and a lot of it has to do with the forbearance programs, the foreclosure moratorium programs, and a lot of those coming to an end. Those are now in some cases been running for 15 months and a lot of people are talking about it’s time to end those as the economy gets back on track. So, what are these three possible waves of foreclosure happening possibly next year? There’s a lot of talk about there’s going to be this massive tsunami of foreclosures. A lot of it, I think, is marketing hyperbole but there are definitely going to be some more opportunities. And so, what are these three waves that we think might be happening?
Daren Blomquist: Yeah. I describe it even though I use the word waves here, that’s obviously a very big word but I would, in my mind, it looks more like a slowly rising tide as opposed to a tsunami, a tidal wave. And so, these are kind of the tide rolling in here, the three waves of the tide rolling in. And we’ve gotten a lot more clarity on this since the last time we talked because the government agencies now have come out with extending the foreclosure moratorium until the end of July. But they have in their language, it’s very different than the last few times they’ve extended because they’ve said this is the last extension. They’ve specifically said this, “This is the last time we’re extending the foreclosure moratorium.” So, it looks like pretty definite that end of July foreclosure moratoriums will end, the national foreclosure moratorium, and so that gives us clarity. And then the other thing that gives clarity is that the Consumer Financial Protection Bureau, which kind of oversees the mortgage servicing industry, among other things, has come out with a rule that kind of comes in and fills the gap left by the foreclosure moratorium expiring. And that rule, it does kind of push a lot of foreclosures out to 2022. However, it does have some big exceptions. And so, the first big exception there is that properties that were delinquent before the pandemic started, seriously delinquent, the foreclosure process can start on those right away before 2022.
So, there is a wave of at least foreclosure starts coming in potentially in the last quarter of this year. There’s about 200,000 loans that are seriously delinquent and were seriously delinquent before the pandemic started, meaning these people are in a very deep hole. They were already at least 90 days delinquent in March of 2020, and they’re still delinquent, meaning they’re well over now a year-and-a-half delinquent, and those 200,000 loans also are not protected by forbearance and they’re not protected but they’re not in any loss mitigation. So, those are the highest risk of once that moratorium is listed, probably at least entering the foreclosure pipeline in the last few months of 2021. And then, as you say, probably hitting the actual market at the foreclosure sale or possibly some of these homeowners will sell pre-foreclosure in early 2022. And then the second piece behind that is if there is another about 325,000 properties and these numbers are in the graph there at the right. That’s a little bit hard to read but this is data from Black Knight, which has done some really good work on this but these 325,000 are properties that are in loss mitigation, meaning they’re actively trying to get into some kind of loan modification or something that will help them avoid foreclosure or they went delinquent after the pandemic, meaning it’s more likely that the pandemic was what caused their delinquency.
But, again, those folks are not in loss mitigation or forbearance. So, I know there’s a lot of moving parts here but these, I consider it the second kind of level of risk because they’re in loss mitigation but as we’ve seen historically, there’s a good percentage at least during the last crisis, about 50% of people who got a loan modification, that loan modification did not stick for the long-term and they eventually ended up in foreclosure. So, that’s another wave coming. It probably won’t start the foreclosure process until 2022 for sure. And then the biggest wave but it’s also the least risky wave, Black Knight is estimating there’s 900,000 loans that are right now protected by forbearance, meaning they’re most likely not making their payments but the bank is not foreclosing because they’re in this forbearance program. But 900,000, they’re going to reach the end of that forbearance sometime this year, 2021. And that’s a pretty big number and they don’t have the opportunity to extend their forbearance longer if they reach the maximum 18-month term allowed by forbearance. So, those loans will now then have to exit forbearance, meaning they’re not protected. The homeowner would either have to start making their payments again, get into some kind of loan modification, but then there’s also going to be a certain percentage of those that will go into foreclosure.
We’ve seen historically up to this point about 15% of loans that have exited forbearance have gone into this bucket of properties or loans that are delinquent and there’s no loss mitigation, so they’re likely to enter foreclosure. So, we have these ways but to put this in context, I mean, if you add all these up, it’s 1.5 million but I would estimate, I mean, it’s hard to gauge this but I would estimate it’s reasonable to think that maybe 20% of that 1.5 million will actually end up completing the foreclosure process, which leaves you with about a total of 300,000 loans. And that’s going to go into foreclosure and that’s going to be probably over a period of 1.5 to 2 years of getting into 2023 really when we’re seeing these loans complete the foreclosure process and hit the market. And to put that in context, in 2019 before the pandemic, there were about 200,000 to 250,000 completed foreclosures. So, we are adding back in more than a year’s worth of extra foreclosures which will, I think, impact the market but during the last crisis, the worst year of the Great Financial Recession crisis, we saw over a million properties complete foreclosure. So, we have an extra 300,000 and that’s nowhere near the level that we were seeing during the last crisis.
Josh Cantwell: I remember the last time we recorded, Daren, you had a slide that said the business as usual foreclosure. So, if the business-as-usual foreclosures are just normal, that disability, divorce, bankruptcy, that kind of stuff, that just happens. Business as usual, obviously no pandemic. There’s roughly about 200,000 that complete the foreclosure process, Daren, saying here over really a year-and-a-half to two-year period. If we have 200,000 business-as-usual foreclosures, we might add it up to 300,000 over that 24-month period where they finish the foreclosure. So, it’ll tick up from 200,000 or so to maybe 350,000, 400,000 because that extra 300,000 will be spread out over maybe 18 months to two years. So, you might add 150,000 in 2022 and maybe 150,000 in 2023. So, you go from a business as usual, 200,000. You bump that up to 350,000, maybe 400,000, nowhere near the million that Daren referenced back in 2008, 2009, 2010 in the busiest year of all the foreclosures. So, that tsunami of deals that a lot of good marketers use, the hyperbole they like to use to hype up the market, sure, we’re going to see more foreclosures but it is not even close nor near. Not only that but, Daren, I don’t think we have a slide on it here but can you comment on the total number of available properties?
We had that slide the last time we recorded about the MLS and I think it was usually about 3 million to 3.5 million of normal MLS listings had dropped all the way down to a million. I think it was 1.05 million because we do have, obviously, a very low inventory still. That’s why that one rental property sold so fast. So, I’m curious if we’re still at that level compared to three months ago or if you have any information on that.
Daren Blomquist: Yeah. That’s a great question. I would say we’ve hit a tipping point in the market where we were past the trough and inventory. It has come, I think, for the last four months, three to four months. We have seen inventory creeping back up. It’s I think maybe closer to 1.2 million to 1.3 million now off of that low on one point, basically, 1 million. So, it’s still well below. It’s still like 20% to 30% below year-ago levels but we’ve seen that tipping point where I think supply has bottomed out and we’re starting to tick up. But it’s still very low inventory, which is good for sellers right now. It’s still good for sellers but maybe I think we’ve passed kind of an important tipping point because demand is also still very strong but some of the demand metrics that we look at in the retail market have slipped just a little bit. Purchase mortgage applications have now been going down for several weeks from a year ago. So, some of the pandemic-induced market frenzy is starting to just calm down a little bit, which I think is actually a good thing. Certainly, it doesn’t mean the market is all of a sudden crashing nowhere near close to that but some of that frenzy is dying down.
Josh Cantwell: Yeah. And some of the price appreciation will start to level off. I mean, the more inventory, the more normal sort of business as usual inventory that begins to hit the market, that will help. And then obviously this influx of additional inventory we just discussed from all the additional foreclosures, that extra 300,000 roughly that will hit the market in the next two years will help.
Daren Blomquist: I would say, in addition to the foreclosure piece, some of this, especially that 900,000 forbearance piece, there’s going to be a good portion of that that also ends up not as a foreclosure sale but as a homeowner just selling pre-foreclosure. And even it could be a normal sale but because of the forbearance, they’ve been able to kind of sit in their home and stay hunkered down at home. But once forbearance ends, they will be more motivated to sell. And so, that will I think also increase inventory on the MLS in addition to the distressed market.
Josh Cantwell: Yeah, I agree. Yeah. A lot of it’s going to end up as a foreclosure sale through either a sheriff’s sale or on the Auction.com platform but certainly, a lot of those are just going to sell maybe slightly below-market or even for full retail price but there’s an underlying distress or forbearance that nobody knows about, right? But it’s going to have to hit the market and that’s the exit strategy. So, tell us a little more about what’s happening with some of these breakdowns with FHA. FHA still seems to be the area where there’s the most amount of distress. Obviously, those people put the least amount of money down. They’re often the least savvy buyers. They don’t have a lot of protections or extra money. They’re often saving just that 3% or 4% or 5% that they can put down. Then when something happens, you typically see a lot of stress. It’s not necessarily subprime lending but there’s just not as much, I guess, protections or stability behind that loan for those particular buyers. So, it ends up being an area where there can be a lot of distress when something like a pandemic hits. And so, what is going down with these? What’s going on with the FHAs and the delinquencies there?
Daren Blomquist: Yeah. FHA is taking up a disproportionate share of seriously delinquent homes. They’ve got mortgages. They’ve got over 805,000. That’s over about I think 1.5 million to 6 million total serious delinquency. So, they’re making up almost half of the serious delinquencies even though as in terms of loan originations, they only make up about 15% to 20% of the market. They’re certainly the biggest risk factor here, which is why I kind of focus in on it and all the points you made are exactly right about why they’re the biggest risk factor. And so, just looking where how much of this FHA book is protected right now by forbearance, which is about they’ve done very well of getting people into forbearance, 77% of these seriously delinquent loans are in forbearance being protected. But right now, there’s about 89,000 that are not protected and so when the moratorium lifts would likely enter foreclosure. But then behind that, you do have still that 620,000 plus that it’s going to be tougher than other loans to get these folks performing again even once they exit forbearance because the lower down payments, as you talked about, the lower credit scores we’ve seen with these types of loans over the last few years and the higher debt-to-income ratios that we’ve seen, these are not on the level of subprime loans, as you say, but I would say that over the last five years, these are the riskiest kind of game in town, at least at a large scale. So, that’s something to look out for.
And the next slide shows kind of where we could see that show up and you do tend to see more of these unprotected FHA loans in the Northeast. Ohio is actually a pretty big state there in the Rust Belt. And the East in general just seems to be more pickup there with the FHA problem.
Josh Cantwell: Probably because those were more affordable homes maybe over the last 5 or 10 years. Because there was so much foreclosure damage done by the last financial crisis, there was more affordability. People could apply for and use an FHA loan more often in Indiana and Ohio, Pennsylvania, those types of areas, Western New York, obviously not New York City, but Western New York, those types of areas. The more west you go, the harder it is to be affordable and thus less FHA loan activity there.
Daren Blomquist: Actually, I mean, unfortunately, in New York, especially in New York I would say, they’re still dealing with a lot of the legacy loans of the last crisis. And some of those are FHA and so, yeah, that’s being added into what’s been being backlogged over the last year or so.
Josh Cantwell: Yeah. It looks like foreclosure activity has definitely picked up a lot now that some of these moratoriums, especially on alternative types of loans like private money loans, hard money loans, those technically didn’t fall under the government foreclosure moratorium because they were not owner-occupied that were investment loans and investment properties. I remember a year ago recording with you and all of these were zero like there was no foreclosure activity anywhere. Things definitely seem to have picked up.
Daren Blomquist: Yeah. We’re seeing on the left-hand side, it’s comparing the second quarter of this year to the second quarter of 2020, which is when the pandemic hit. So, all the numbers are much higher than a year ago because of the artificially low numbers, as you said, are almost zero in some places. And so, you see these huge jumps, which is the point there is I don’t want to over-sensationalize this but the point is that foreclosures have bounced back. There are a lot more happening than they were a year ago. However, to counter that on the right, you see that foreclosure activity in the second quarter compared to the second quarter of 2019, which is kind of more of a normal business as usual year, in most states we’re still below those pre-pandemic levels. A couple of exceptions there that are smaller volume states like North Dakota and Iowa is pretty close to pre-pandemic levels. But in most states, we’re more in the range of a third or below the pre-pandemic levels and so that’s what we’re seeing in terms of inventory. But the other point I want to make here is that there is, even though in the midst of a moratorium, the moratorium is still in place, foreclosures are happening. There is inventory there. It’s just more limited and these are mostly going to be vacant properties, which actually investors tend to like that are going to foreclosure sale right now.
Josh Cantwell: Yeah. Now, there’s a lot of other properties being foreclosed on kind of comparing them all on this slide from retail to office to farmland to multifamily, single-family. No surprise that the most types of properties being foreclosed on are retail and office. Obviously, very few people shopping during the pandemic when we were all locked up, and very few people coming into the office when everyone was working from home. And so, there’s a lot more distress and more foreclosures happening in the commercial space. My quick interpretation, I don’t know if this is accurate, but my knee jerk is simply because they’re commercial properties. There is no foreclosure moratorium on commercial. There is no government protections versus in residential, especially people who are occupied. We just talked about all the forbearance programs that are available and eviction and foreclosure moratoriums that have been available on residential. Commercial has no such protections. So, just maybe your interpretation of this slide, Daren? What do you say?
Daren Blomquist: Yeah. Absolutely. And just to apologize, I left the actual percentages off here but just to give you a baseline, all commercial there, that blue line near the bottom, that should be 44% where all residential is 26% meaning we’re seeing 44% of the pre-pandemic levels in commercial foreclosure and only 26% in residential. I do think your interpretation is right with the lack of protection. And then on top of that, you have the additional risk because of the nature of this pandemic caused people to flee offices and go home. So, they’re still using their homes but they’re not using their offices. They’re not shopping. And so, those areas were the ones that got harder hit.
Josh Cantwell: Right. Yeah. That’s pretty wild. Daren, I’m going to skip to the very last slide. I’m going to skip over the different types of loans that are in foreclosure because we already kind of highlighted FHA. There’s just some more proof of that. Just for the sake of time, skip to the last slide here, which is really talking about single-family rent growth back above pre-pandemic levels. And so, a lot of my followers, listeners are both residential and commercial investors buying rental properties, building portfolios. What are we seeing now? What has the story been for the last 18 months regarding rent, regarding growth of rent? And what areas are some of the hottest places to own rentals?
Daren Blomquist: Yeah. By the way, this is data from CoreLogic. I put MBA there at the bottom, so I apologize, but just to give credit where credit is due. So, yeah, what we’re seeing is at least the single-family rent market has bounced back very strongly in the wake of this pandemic and I think the reasons behind that are kind of been well talked about as people actually want to have a home now and especially a single-family home with a little more space. And so, there’s a high demand for it and then on top of that, you have the people who normally might sell are not selling and so there’s less supply. And this has caused the growth to bounce back in terms of rent and I think detached versus their stronger demand in the detached single-family market. So, again, that speaks. That’s on the left there. The orange lines spiking up are the detached rent growth and that speaks to people having more desire to live in a home that has a yard. It’s a little bit more spaced than an attached situation, although we’re still seeing growth in the attached market. And then, yeah, the areas that are doing well are the areas kind of going back to that demographic slide that are experiencing increases in population, Phoenix, Las Vegas, but are also still somewhat relatively affordable. You see they’re below $2,000 for a single-family rental in some of those top markets. Whereas if you go to the bottom, you see the Cook Counties of the world, Chicago and Boston and even Los Angeles, Los Angeles has growth but it’s not as strong. We talked about that earlier with the demographics and its rental price is close to $3,000. So, it all ties back to I think the demographic and affordability trends with the rental market as well.
Josh Cantwell: Right. Yeah. You see the areas we discussed, Arizona, Nevada, a lot of the areas that I like where I own apartment buildings, Georgia, Texas, South Carolina. Surprisingly, you see Washington, even Seattle with some good rent growth in a major market. But again, there is population migration towards Seattle, which we discussed on one of the earliest slides. Of course, Orlando just seems to be growing and growing and growing, Mickey Mouse, and everything that happens in Orlando. So, affordable taxes are low, no state income tax, and very affordable, still just $1,600 for a rental in Orlando and still growing at roughly 3%. But again, that speaks to I think we’ve made the right decision. Me personally speaking from a personal basis to be investing in those kinds of areas like Texas, Midwest, South, Southeast has worked well. We’ve stayed away from the coast. We’ve stayed away from California. We’ve stayed away from New York, New Jersey. We’ve stayed away from those kinds of areas. And you’re seeing population migration going that direction, people enjoying the Sunbelt as well as some areas in some states that have lower or no income tax versus the high tax areas of Chicago, New York, and California. Continues to tell the story we’ve been talking about, Daren, for over a couple of years now. Pretty interesting stuff.
So, Daren, listen, I know we’ve got to run. Can’t wait to have you back. We’ll have you back at the end of Q3 to tell the story again about what’s going on in the market. To my audience and listeners, if you have not yet engaged in Auction.com, you are missing out not only for inventory, for properties to bid on, to buy on, but also all of the data that Daren puts together and aggregates and disseminates and then reports on, make sure you go to Auction.com/InTheNews to engage. I mean, literally, they’re putting out reports on a weekly basis on various different topics. And of course, these interactive maps especially are being helpful to not only my listeners but listeners across the country to find out where to invest and where the population is moving and where they’re still affordable. So, Daren, any kind of final parting thoughts or words of advice before we wrap?
Daren Blomquist: Yeah. Just a quick selfless, shameless plug for Auction.com but I’m excited about it is that as you look at areas that are good to invest in, first of all, we have a good portion of our auctions are online so you can go and bid online anywhere in the country. You don’t have to be physically present. And then there are a portion of properties that are up for foreclosure auction, which in the past you traditionally had to physically go to the courthouse to bid on those. But there’s an increasing number of counties where we have something called remote bid available and it’s on our mobile app and you can actually see an auction taking place, let’s say, in Cuyahoga County. You can go on remote through the Auction.com mobile app and bid remotely and don’t have to go down to the courthouse, but you’re participating in the live auction. You can see what other bidders are doing. So, we’re excited about that because it does open up the possibilities for investors to bid outside of just their immediate area and find those markets that are best for them and find the inventory in those areas and be able to bid conveniently without having to be there physically.
Josh Cantwell: Oh, I love it. Thanks for the plug. Very helpful tool. Thanks for that. Daren, thanks again for joining me today on Accelerated Real Estate Investor. We’ll see you next time.
Daren Blomquist: Thank you.
Josh Cantwell: So, hey, guys, there you have it. Hope you enjoyed that interview with Daren. He’ll be back on roughly three months from now to continue to educate you and all of my listeners about what’s going on in the foreclosure markets, the housing markets, the multifamily markets. I hope you enjoyed the interview. If you did, don’t forget to subscribe. Click the subscribe button, leave us a five-star rating and review. If you’re an investor looking for a deal, looking to invest in one of my future projects, don’t forget to go to FreelandVentures.com/Passive and register on our investor platform. Thanks so much, guys. We’ll see you next time. Take care.