More local investors expect a price correction in 2024. They’re still buying.

An increasing number of local real estate investors buying distressed properties on Auction.com expect home prices and rents to fall in 2024, but most still plan to bid at least as aggressively at auction as they did in 2023, given stubbornly low housing inventory.

Forty percent of more than 400 Auction.com buyers surveyed in January said they expect home prices to decrease in 2024 in the markets where they operate. That was up from 32% in a 2023 survey and up from 17% in a 2022 survey.

Buyers located in the Southeast region of the country were the most pessimistic in terms of home prices, with 46% saying they expect home prices to decline in 2024—the highest of any region and up from 37% in 2023 and up from just 12% in 2022.

Buyers located in the West region of the country were most optimistic in terms of home prices, with 35% saying they expect home prices to decline in 2024—the lowest of any region and down from 43% in 2023.

The West region was the only one in which buyers became less pessimistic about home prices in 2024 compared to 2023, although West-region buyers were still much more pessimistic about prices in 2024 than they were back in 2022, when just 7% said they expected home prices to decline for the year.

“My colleagues and I feel that we have to offer more than asking price to get a property in good condition,” said Han Zhang, a real estate investor in Southern California who referenced a recent retail market purchase he and another investor made. “The seller received multiple offers, and we had to outbid another cash offer. The asking price was $1.02 million, and we got the deal at $1.08 million.”

“It is not an uncommon situation in my area,” Zhang continued. “I feel the inventory is still too low … and I think this situation will remain for the rest of 2024.”

Buyers who primarily employ the renovate-and-rent strategy for properties purchased on Auction.com were more optimistic about home prices, with 37% expecting home prices to decrease in 2024 in their local markets. Buyers employing renovate-and-resell as their primary investing strategy were more pessimistic about prices, with 41% expecting a decline in 2024.

Rent Appreciation Outlook

Renovate-and-resell buyers were also more pessimistic about rent appreciation in 2024, with 31% expecting a decrease compared to 23% of renovate-and-rent buyers expecting a decrease in rents.

Overall, local investors purchasing on Auction.com were more pessimistic about rent appreciation in 2024 than they were in 2023, with 29% expecting a decrease in rents in 2024—up from 16% in a 2023 survey.

Although buyers located in the West region were least pessimistic about home price appreciation, they were most pessimistic about rent appreciation, with 35% saying they expect rents to decrease in 2024 compared to 2023. That was the highest of any region and up from 22% in 2023.

Buyers located in the Northeast were least pessimistic about rent appreciation, with 27% saying they expect rents to decrease in 2024. That was still nearly double the 14% that expected rents to decrease in 2023.

Inflated Home Prices

In line with the increasingly pessimistic home price appreciation and rent appreciation expectations, nearly half of buyers surveyed (49%) described their local markets as “overvalued with a correction possible.” That was up from 42% who described their local markets that way in 2023.

Slightly more than half of renovate-and-resell buyers (51%) described their local markets as overvalued, and 45% of renovate-and-rent buyers described their local markets as overvalued. Buyers located in the Northeast region were most likely to describe their local markets as overvalued (58%), and buyers located in the Central region were least likely to describe their market as overvalued (41%).

An analysis of historical price-to-income ratios for home prices nationwide indicates that home prices have become overvalued, at least in relation to the historical relationship between prices and incomes. That analysis shows that actual home prices nationwide—as measured by Zillow—are 20% above what the home prices should be, based on historical price-to-income ratios.

That 20% gap between actual and theoretical home prices is down from a peak of 27% in July 2022 and it’s on par with the gap in 2006, leading into the home price correction that started in late 2007 and extended through early 2012. Actual home prices ran below the expected home prices based on price-to-income ratios for several years during and after that home price correction.

The gap between actual and theoretical home prices demonstrates that home prices may be inflated, but it doesn’t necessarily mean home prices will correct sharply in the near future. Home prices may be in a bubble, but a sharp object is still needed as a catalyst to pop that bubble. In 2007 that sharp object turned out to be risky mortgages that failed at a high rate, flooding the market with distressed sales that pulled down overall home values and began a vicious cycle of foreclosures and falling home prices.

Investor Pricing Still Aggressive

Although an increasing share of local investors buying on Auction.com are expecting home prices and rents to adjust lower in 2024, most are not planning to adjust their pricing lower when purchasing at auction, an indication they aren’t expecting a dramatic home price correction along the lines of 2007 through 2012.

More than half of all buyers surveyed (56%) said they expect their maximum bid at auction—relative to estimated property value—to remain the same in 2024, while another 21% expect to increase their maximum bids in 2024. Twenty-two percent expect to decrease their maximum bids in 2024.

Local investors, who accounted for 78% of all buyers surveyed, are markedly more bullish on pricing than institutional investors, who accounted for just 3% of all buyers surveyed. Sixty-one percent of the local investors said they expect to increase their maximum bid pricing in 2024, while 57% of institutional investors said they expect to decrease their maximum bid pricing in 2024.

“Remote bidders have been driving some numbers that seem very high to me, given the condition of the property,” said Tony Tritt, a longtime real estate investor who buys at foreclosure auction in the markets west of Atlanta, Georgia. Remote bidders are bidders who use the Auction.com mobile app to bid remotely during a foreclosure auction. “Additionally, with the lower volumes, it seems reasonable that people are paying up to just get something.”

The price that distressed property buyers on Auction.com are willing to pay relative to a property’s “after-repair” value—the estimated value of the home once it has been fully renovated—is a reliable forward-looking indicator of retail home prices. This indicator accurately predicted the drop in retail home price appreciation in mid-2023 and the rebound in retail home price appreciation in late 2023, in both cases about six months in advance.

In the second half of 2023, that price-to-value auction indicator turned downward, indicating another slowdown in retail home price appreciation in early 2024. The indicator has plateaued in recent months, though, signaling that investors are expecting the retail market to stabilize by the second half of 2024.

Categories | Article | Market & Trends
  • Daren Blomquist

    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.

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