Welcome to passive real estate investing. I’m your host, Marco Santarelli. You know, will Rogers once said, don’t wait to buy real estate, buy real estate and wait.
You know, there’s a lot of truth to that because all markets, both economic and real estate cycle up and down over time. When the housing market crashed back in 2008 it led to one of the worst economic periods since the Great Depression. And we often refer to this period as the great recession. The economy has not just recovered from that period, but today it has steadily grown each and every year since that crash. And over the last decade or so after the great recession, unemployment is now at its lowest in the last 50 years according to government statistics, wages are rising at a faster rate and consumers continue to spend more and more, which all fuels the economy as a whole. So paying attention to housing market trends can serve you well as a real estate investor.
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And that’s what we’re going to learn more about today with my great guest Daren Bloomquist. All right, it’s my pleasure to welcome Daren Bloomquist to the show. Daren is the new vice president and market economist at Auction.com the nation’s largest online real estate transaction marketplace focused on the sale of bank owned and foreclosure properties. Now recently Daren served as the vice president at ATTOM where he was widely recognized as an authority in the housing and mortgage industries. Today at Auction.com he is focused on analyzing and forecasting complex economic trends within the marketplace and within the industry. And what I love about Daren is he loves data and he’s a super smart guy.
So Daren and welcome to the show.
Thank you for having me Marco. It’s great to be here.
Well I’m glad you’re on the show. I’ve been actually wanting to get you on for a couple of years. And that’s just my, uh, my fault for not getting you on sooner. Cause I remember following you when you were back at Adam. Um, and just all the articles and data that you pulled in and you just put out so much great content and I thought it would be brilliant for our audience to listen to and learn more about. But here we are today, so we have you on the show. Tell us a little bit more about yourself and your background, Erin.
Sure. I’m, I’ve been here six months at auction.com approximately a little bit more and that came from Adam data solutions where I spent 17 years, believe it or not, a previous, uh, it went through several iterations prior to being named Adam data solutions. It was realty track, which folks may be familiar with. Really, I’ve been a part of an exciting ride getting to see the evolution of what I would call the marketplace for real estate investors. And realty track was a first form of that with putting foreclosure properties out there publicly that that used to be very kind of hidden for folks. And that was one step in the direction of kind of democratizing, I would say real estate investing. And we’ve seen that since the last housing crash. And then this last recovery, I think one of the big storylines has been how real estate investors have helped the market recover I think and stepped in enabled by technology and tools and data that have helped, um, democratize the process and allow someone in California where I live to be buying properties in Alabama or wherever and those investors stepping in and different formats, um, has really created a floor for the housing market after the recode or after the bust and has helped rebalance.
It’s the marketplace from one that is was way too homeownership driven to one that’s a little more balanced where we realize not everybody needs to be a homeowner. Uh, so I’m getting all philosophical on you, but that’s been my journey and kind of seeing that that’s one way of looking at my journey. A career journey is, is being able to see it through the eyes of, of a democratizing data and technology for real estate investors. Adam was one of the largest data aggregators in the country, wasn’t it? Yeah. And it still is. It’s still out there. Um, I didn’t fall apart when I left, thankfully, uh, as much as you know, maybe that would boost my ego, but the, uh, still doing a great job and I actually use a lot of their data still here@auction.com and it’s a put that public record data that really gives you a view into, um, the market and foreclosure data as well.
Um, and then here@auction.com it’s been fun because I get a pair that with real, a little bit more, uh, what I describe as transactional data and even behavioral data, I guess, for lack of a better word, but you know, maybe that’s what an economist would call it. Um, how buyers on our platform and sellers, both sides are behaving. You know, we have this marketplace connecting buyers and sellers in real time. It’s, it’s a, you know, you could argue it’s, um, there’s very compressed and often, oftentimes, especially at the foreclosure auction in person where the property sells in a matter of minutes. Um, you know, we see that buyer and seller behavior very quickly and our data and we’re captured, we’re digitizing that process, capturing a lot of that. So you see the actual sale of the property, but you see what people were bidding, even if it doesn’t sell, you see how high did the bidding get, what was the interest in that property. And then you also see on the seller side, the reserves, you know, here’s what they were willing to take on the home. Um, the minimum they were low and then sometimes they lower their reserves. So, okay, well that we were just kidding. That was a, we’d rather get rid of this property now for this price and um, then take it back on our books. So that sort of thing really starting to dig into and understand the distress marketplace, um, with that data.
Yeah, that’s interesting because you now get to see the market and you get to see market trends through this lens of the, of the distress housing market. And in my opinion, that’s a unique perspective when analyzing housing trends. So some people listening to this may think, well, um, you know, w why are foreclosures and distress properties important to me as a real estate investor? What would you tell those people?
Yeah, I think that’s a really interesting question that I, that’s different now that I’m auction.com and I would have answered it at him at Adam. I would have said, you know, does the distress market for investors is, it’s all about supply. It’s one channel of supply for you as a real estate investor. Um, and that supply, you know, the main storyline for the last seven years has been that is drying up less and less of that for closure supply, which is why investors are having to go other places to buy properties. Um, and certainly, yeah, there are other channels besides foreclosures that, but that has been a longstanding tried and true channel for buying discounted properties because you have this motivated seller. Anyway. I would answer it a little bit differently now in a couple of ways. One is that it’s just a good barometer of the health of the market.
It’s a double edged sword for investors. Foreclosures being up means more supply. But it also probably means if we see a spike in foreclosures at some point that probably means the market is correcting or has some kind of trouble signal that could be bad for appreciation, for demand for homes, for um, now it’s actually might be good for rentals. Um, but anyway, so there’s that element of it. And then the last element of the distress market that I think is important is actually looking at it. And I’ve been doing this more@auction.com looking at it as a leading indicator, especially with what investors are doing at the auction. Um, the auctions that we track really I think is a leading indicator, not a lagging indicators distress is typically thought of, but it’s, um, a leading indicator of the marketplace because investors, a lot of our investors about half and half, half are flippers.
So they’re buying a property, the auction and they’re trying to predict what the market’s going to look like in six months. So what they’re doing now is predicted, you know, to the extent that they’re correct. And I think if you take them collectively, um, they tend to be correct predicting the market. You know, what they’re doing now is predicting what the market’s going to look like in six months, six to 12 months. So that’s a great leading indicator, um, of, of the marketplace that we’ve been, um, that I’ve been looking at more and more. I can go into the, I could talk about that. It just like in a data, we have these super Tuesday auctions in Texas and Georgia, some of your, uh, your listeners may be, I’m familiar with those, but those, I was just looking at views on our mobile app are highly correlated on those Super Tuesdays, very highly correlated to existing home sales of the overall housing market. So if investors are confident and are going on our app and viewing more of those super Tuesday auctions that happen once a month, we often see an uptick when there’s an a bigger uptick and those that interest by investors. We also then later in the month end uptick in home sales. And it’s a, it’s very interesting to look at it.
You made the comment that foreclosure activity is a leading indicator. And actually one of my questions that I wanted to ask you was, um, in your opinion, is foreclosure activity a leading or lagging indicator of overall housing market trends? But as I’m flagging, yeah, it’s, you’re saying it’s legging,
it’s lagging, but I think what the leading part of the distress market is, is the, the buyer side. So the what the buyers are doing, uh, and how high they are willing to bid on foreclosure properties and how many foreclosure properties they snatch up. That is more of a leading indicator of the market going.
This is what I was just thinking, is that it could be both. Could it not be a leading and lagging indicator because if you have foreclosures, that means something happened before that to create that increased supply of foreclosure inventory. But on the flip side, if you have a lot more foreclosure activity in the pipeline coming out, you’re going to eventually increase the supply in the local markets, particularly in states like California, which our notice of default states as opposed to traditional auction states. So could that not also be a lagging as well as a leading indicator?
Yeah, yeah, that’s a good point. Um, because especially with the data we’re getting, and even at Adam, you could see it with the pre foreclosure data before the foreclosure has actually happened. There’s usually several months before that that we know that this property is in trouble. And it’s lagging in the sense that by the time we know that property’s in trouble, that person has been in trouble probably for at least 120 days delinquent. So there’s a, there is a lagging element to it, but it is leading in the sense that, well, yeah, if we see this way, this inflow rising, eventually that is going to impact sales down the road, more distressed sales down the road. Um, and so for people who are closely watching it, yes. I think we’ll have a head start. If you see a spike on the front end and the, uh, inflow for notices of default, for instance, that might be a signal. And I know people like, um, Bruce Norris in California did this. That’s what they looked at and they’re still looking at, um, but to help them get ahead of the last crash is when they saw that the spike in pre-foreclosure notices, um, as an investor, maybe that’s time to, um, do it. Yeah. Exit, do whatever you need to do to go on the defensive as opposed to it.
Yeah. I’ve got to ask Bruce about that. I’m going to have him on here in a few weeks. So I’m gonna pull that out of him a little bit.
He doesn’t see those as much because, and this is true, the banks have gotten better at helping people avoid foreclosure because of the mess we went through. But there’s a, so there’s a whole thing where that may not be as much of a strong indicator as it used to be, but I still think it’s, if we saw us big jump in notices of default all of a sudden, like we did last time, that would be a big sign that you know, and usually that notice from notice of default to foreclosure, if everything goes smoothly, it takes maybe 90 another 90 to 120 days, probably more realistically like six months. So you have, as an investor, you see that spike, you say, okay, I have six months to exit, you know, moving my stuff around.
Yeah, that’s important to consider, especially if you’re in an expensive state. So that really begs my next question for you is where are you seeing foreclosure activity increase or decrease in a more broad sense, like you know, regionally, not necessarily, you know, city by city, but where do you, where do you see increases in decreases in foreclosure activity today?
Yeah, and I would say the, the big story is that foreclosures are continuing to decrease. A foreclosure starts are continuing to go down nationwide. You know, we’re basically down year to date. If you look at the Adam data and notices of default for closure starts, um, those are down about 8% year over year. Uh, and they just came out with a report yesterday on that actually. So that’s continuing to go down. But you are seeing in both, and this I looked at both the atom data on the foreclosure starts and then our own auction data are what we call inflow when the banks basically assign properties to us that are in foreclosure. And if you look at the, and I have a heat map on our, on our, in our newsroom where you can go and look at this, but it’s fairly sterling to me, it’s fairly clear that the increases we’re seeing actually tend to be in the West and south now that is skewed by Florida and Texas, which may be a surprise to people.
Oh well why, why are those increasing? But Florida for instance, in April for closure starts according to Adam, we’re up 34%. Texas was only up 1%. Um, but those two were influenced by the aftermath of the hurricanes and we’re still seeing increases there. But then you do see places, um, like even Colorado, Nevada, Arizona with increases both in our data and Adam data. Um, now they’re coming off of very low levels, but I think we’re finding a bottom basically is what I would say. We’re close knit, not nationwide, but in some of those markets that are actually ahead of the curve in this housing recovery are finding a bottom and foreclosures and they’re starting to tick back up a bit and some of those areas. And then of course it’s exacerbated a bit in uh, Texas and Florida. You look at some of the like Houston numbers and some other markets in Florida, you see these pretty strong double digit increases in for closure starts. Um, that’s more of a short, short term I guess opportunity you might call it for investors to go in and find those distress properties triggered by the natural disaster events there.
I’ve always wondered if there’s an actual correlation between foreclosure activity, whether it’s increasing or decreasing and local market median price and affordability. Is there a correlation or connection between those two?
Uh, I haven’t seen, I’ve, I’ve run a bunch of correlations with our, uh, you know, auction data distress data overall market data. That’s one of the things I spend almost every day doing, but I haven’t seen a strong correlation there. So you’re asking between, I would just to make sure I’m understanding between foreclosure activity and home prices.
Yeah. So if, if you, if you’re looking at a local market and there’s an increase in foreclosure activity, you have a lot, you have a lot of, uh, you have an increase in the foreclosure activity. And, and ultimately as a consequence of that, you have more foreclosure product coming on the market. Do you see that affecting the median price of the housing stock in that local market? I’m just wondering if there’s a connection or if that makes any difference to pricing.
Yeah, there certainly was. I mean, once it becomes, there’s a tipping point and we saw that there was no doubt that that happened during the crisis because our closures became in many markets, like over half of the market were, were distressed. And when that happens, oh yeah, for sure they’re going to tip the scales. And then of course there are the four other forces. It’s, it’s tougher when, you know, right now foreclosure sales are in most areas are less than 5% of the market, which actually, you know, might seem like a, a fair amount, but it’s still not enough to usually move the needle too much. Um, but I think we do see, I haven’t run the exact correlations on this, but the, this gets a little bit more nuance, but the rate of home price appreciation starts slowing. Uh, I think there is a connection there and that’s something we’ve seen in the west.
Some of the Western markets, Coastal California is a classic example is you start to see some of this, these slight increases in foreclosure activity. Again, nothing earth shattering, but at least they’re going, you, they’re going up and they’re not going down as they have been for the last seven years. And then you see slow home prices are still going up in a lot of markets, although there are some exceptions we can talk about, but you at least start to see the slowing home price appreciation. And I think those two in tandem, probably there is a connection there, um, that you have. And I think in, at least in this market, that connection is affordability, which is affordability is causing creating a situation where there’s fewer people who can afford a home, which is putting less pressure, upward pressure on home prices. And it’s also caused, it’s causing some more problems for people who’ve already bought a home and really maybe can’t, couldn’t afford it or stretching themselves financially. And so there’s a few more of those getting it [inaudible]
yeah, you made a quick reference to the last recession and it made me think, you know, I often get asked by investors about upcoming recessions and the impact that it could have on the housing and therefore that investors decision on whether to invest now or just wait things out. So first off, I mean, this is a matter of opinion here, but do you see a recession on the horizon?
Yeah, that’s a, I get asked that a lot too. And you know, I don’t know, but I, my best guess is that we will see a recession, um, somewhere in, in the next couple of years. I mean, that’s kind of a economist cop out, but it’s, I, it’s just hard. Um, you know, there, there are some sig technical signals for recession coming that we’ve seen with the inverted yield curve. Uh, and then just the, honestly the, the length of this recovery tells us that, that traditionally you have that the way the cycles, economic cycles work is that you would expect some kind of recession, um, or pull back after such a lengthy recovery. Although it has been a, uh, a very, in many ways, you know, very slow plotting recovery. Uh, and so that actually bodes well for the recession being a more mild recession and not a huge event.
Last I heard, we’ve been in the second longest recovery in US history. I don’t know if we’re still in the second or for now the first, but we’re up.
I think we got into the first app. I should know that. But um, the, yeah, were either close to or at the first, you know, in terms of log in recovery, which is great news. But it also just tells you that based on his history there is going to be a recession. Now I do think in terms of housing, it’s just hard to envision that there would be as big of an impact as on housing as the great recession. And if you look back at the five to seven recession prior to the great recession, in some recessions, they didn’t go down at all. But the typical, there’s typically like a one to 5% drop in prices during the recession. That’s pretty small. Um, yeah, it’s not, you know, it’s more of a correction, not a, uh, a crash like we saw during the great recession.
So that would, the more of this scenario I would anticipate it could be that mild recession. If there was some other shock outside of just kind of a normal economic cycles, then it could cause it to be more severe. But a most likely scenario I see as more of a mild recession in the next couple of years, that does cause some, uh, correction in housing. But, um, uh, not an extreme an event. And I would say, uh, you know, one option is to try to wait and try to time that it’s a little tougher and it might be more successful in a more dynamic market that does tend to go up and down more in terms of home prices. Some are like California but in a more slow and steady markets, a lot of places I think where your listeners are buying rental properties, there’s probably less chance, although there’s a few exceptions where you’d see a, a big advantage in waiting,
you know, nothing that we talk about on the show is meant to be investment advice. You know, it’s just information and data and that kind of stuff. Um, but investors think about, you know, you’re looking at data all the time, you’re analyzing trends and you’re looking at housing markets and investors ask themselves the questions like, when’s the next recession and how will that impact me and should I wait or should I invest now? And, um, the, the question about a recession, it’s is not a question of if we’re going to have one as a question of when we’re going to have one. Um, but those numbers you just gave are interesting. If corrections are only about one to 5% in terms of the effect on, on local market prices, then I would think the question of whether to wait or invest now should be simple. And that is just, you know, keep doing what you’re doing. Look for the best deals in the best markets and continue to continue to invest. Cause I was going to ask you the question and you’re welcome to answer it. You know, if you think in a recession should affect an investor’s decision to invest at all. You know, I just gave you what I think. Um, do you have an opinion or comment on that?
Um, I would say yeah, I mean my opinion would be probably not. I mean that’s, it’s something they should be aware of and, and keep their head up and eyes open and it may tweak what they’re doing, but in most cases, especially for the, again, you know, getting back to this kind of steady eddy type of markets, Middle America meat and potatoes with all those different, uh, where there’s not a lot of of change. Um, now you look at markets and you know, coastal California and then there’s have been some markets in the middle of America that I would say of have become more volatile. And so that it becomes a more of a matter of understanding the market you’re investing in. Right. How, how sensitive that is. And I, I do, I would argue there’s a few markets, um, that used to be those middle America steady Eddie markets that have because of population shifts and things like that have become the more dynamic potentially volatile market scene. You need to be a little bit more careful around. So, um, and that’s, I think the big answer is no, but it’s somewhat based on the local market you’re in too.
I agree. You know, when we, when we talk about trends, it’s hard not to include migration trends as part of that overall discussion. Uh, I don’t know how closely you follow that or, or if that’s even part of what you look at. But if you do follow migration trends, what migration related changes or shifts have you seen over the last year or two that we as investors should be aware of?
Yeah. One of my favorite reports, and I wish it came out more often, is the, the census net migration report comes out once a year, came out a couple months ago looking at where people are moving to and from. And what we see is net migration losses in, in California is one big state that’s losing people to do domestic. And even well, it will leave out international migration. Uh, but the biggest, uh, and I have another heat map on this too. Um, the biggest gainer is Florida, which may not be surprising in terms of population. California lost 38,000 more people than it gained in 2018 and this is not including births and deaths by the way, it’s migration. Meanwhile, Florida gained 308,000 more people than it lost. Wow. Um, so those are the biggest loser and the biggest, well actually that California is not the biggest loser. Um, New York is that the net migration loss of 109,000 and then actually Illinois net migration loss of 77,000.
And then you have California with 38,000 loss. Biggest winner was Florida, that 308,000 gain followed by Texas 187,000 gain. Um, and then it looks like Arizona and 97,000 gains. So people are moving to the sun belt states that have low taxes. Um, it’s the storyline I think a lot of people know, but the, the migration data really bears it out and um, they’re moving away from some of the higher tech states. You know, California is, you know, you can’t, some people have talked about the weather, certainly with New York and Illinois. Weather may be a factor of California. I don’t think you can argue that weather is a factor. I think moving from California to, to Texas or Florida,
those are, those are the states, not states. Those are the counties that are often in the news. You know, when you talk about high taxes and a migration loss is like La County, orange county where you and I live the San Francisco Bay area, New York, uh, Washington DC. I mean these are high priced areas and they certainly affect and impact the local market. And, and these are things that I believe investors really should be aware of. I guess the thing I’d like to ask you is what the biggest impact or effect that these negative net migration trends have on these local markets?
I think, uh, it, it’s a decreasing demand for housing. You know, if we went through the perspective of a real estate investor and you know, there are other, there are other implications as well, but simply fewer people who are interested in buying a home and fewer people who are interested in renting homes in those markets. Now I think California’s in pretty good shape overall. Uh, because you know, 38,000 is not a huge loss. Um, but it’s, it’s trending in that direction. And so I think that’s in addition to the fact that housing is so high priced in California, that’s another risk factor is the, at least weakening of, of, of housing demand. And on the flip side, you know, if you can find those markets where population is increasing and there are good deals still available, um, that, that’s the sweet spot.
Yeah, I agree. So clearly market trends such as demographics and foreclosure activity and migration are all important things that shaped the future of all the local real estate markets all around the country. And therefore these things help shape the decisions we make as real estate investors. So just two quick questions as we wrap up here. Um, what do you see in terms of the housing markets around the U.S. doing, or how are, do you see them evolving over the course of this year and probably into 20, 20, uh, if you have an opinion on it?
Yeah, the, the uh, evolution of the housing market. I think, uh, you know, we’re seeing generally a slow, we have, especially in 2018 it was the storyline was a market that was slowing down and showing signs of weakness basically. And I, um, it’s picking back up. I think the lower mortgage rates are helping to give a little bit of a shot in the arm to 2019. So we’ll see a better housing market in 2019 than 2018 but not, um, it’ll be more of a, a muted type of, of, of bounce back and almost, you know, almost boring in a way. I think, you know, sometimes, of course, like with the media, they want to Ha the story needs to be dramatic. It, it’s the last, you know, the last few years have not been super dramatic, but I think, um, and I think that will continue in 2019 but, um, you know, we’re going to see in most areas a single continued single-digit appreciation. So that’s one thing I think to be aware of from an investor perspective. And um, yeah, I, I think, uh, I think it’s, it’s good for the sustainability of the housing market, uh, to use a, I guess a buzzword that we’re, that we’re kind of in that boring spot.
Yeah. I, I, I’ve actually said for years, boring is good because boring is predictable and sustainable. When you talk about an asset class such as real estate, you, you want that, you want that stability and predictability because you want the income from the cash flow and you want it to appreciate at or slightly above the real rate of inflation. And if housing is doing that for you as a real estate investor, I think that’s a win. Um, it’s when you have these ab abnormal real estate market cycles where you’re watching property values decrease faster than historic means or increase faster than historic means that you really need to be on your toes and start to pay attention to what’s actually going on. So my argument is that boring is good when it comes to real estate.
Yep. Absolutely. Boring is good. Um, we are, I mean we are seeing some markets start to correct already. Uh, I didn’t, I’ve mentioned this in passing. I’ll mention it again. So it’s, uh, it is local, local, local, local, but, um, the markets that are correcting right now. And I think I, I, I want to mention this cause I don’t think it gets enough attention, but, um, you know, we already see for two consecutive quarters, San Jose, the most expensive market in the country has seen increasing home prices. Now, um, San Francisco just went negative as well. So this is not just slowing pro’s price appreciation, but a minus sign in front of that percentage point. Uh, and so that’s I think, uh, something to be aware of. We don’t see that much in the, um, I’m just looking here at the, uh, the Midwest at all. Um, if there was a couple of markets in Connecticut that are negative, um, most of the market, it’s, it’s more of the boring story of prices are probably not going to go negative. But, uh, there’s, you know, you’re going to see maybe one to 5% appreciation. Um, I think it would be my opinion. And that’s, that’s kind of the pattern we’ve been seeing in a lot of markets over the last year or so.
Cool. So let’s wrap it up. What advice would you give real estate investors, if any, in order to stay on top of these changing trends? You see it every day, you know, it’s, it’s right there in front of you, but for, uh, for us laymen, um, average Joe real estate investors, what, you know, what can we do to stay on top of these changes?
Well, I mean a great, where I’m putting all my stuff and publishing articles and heat maps that allow you to go down to the local level on the auction.com newsroom, auction.com in the news or forward slash in the news is a great resource. Um, and yeah, so I think, you know, we, uh, those are a couple of sources, uh, I know about and um, I think, uh, yes, I mean certainly on auction.com as well you can find a actual properties for, for sale and sometimes just, you know, monitoring those even if, whether or not you’re even bidding or buying, you can start to understand just like he might go on Redfin or Zillow to look at the retail market. You know, you’d go on an auction.com and seeing what, what type of activity you’re seeing, uh, in terms of properties available and what kind of bidding, uh, opening bids are on those properties
so people can follow you on auction.com so why don’t you tell our listeners how they can find you, where they can find you and get more information. You know, auction.com is obviously the big one.
Yeah. Archon, send.com forward slash in the news is where I’m posting all my stuff. I’m on LinkedIn under Daron Bloomquist. I posted a lot of stuff in there as well that, uh, you can track and keep and I try to, I try to keep it simple so you can a quick visual that you can understand. Then if you want to drill in deeper, you can go in there and, and explore it.
Awesome. Daren, this has been great. Um, I’m glad I finally got you on the show.
So this is greatly appreciated, so thank you for your time.
Thank you so much, Marco.
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