Daren’s focus is on analyzing and forecasting complex macro and micro-economic data trends within the real estate market and greater industry to help Auction.com build an increasingly efficient marketplace for distressed sellers and buyers.
Prior to Auction.com Daren served as Vice President at Attom Data Solutions where he was widely recognized as an authority in the housing and mortgage industries. Blomquist analyzes and forecasts complex macro and microeconomic data trends within the marketplace and greater industry. The reports have been cited by thousands of media outlets nationwide, including: The Wall Street Journal, The New York Times, and USA TODAY. Blomquist also served as executive editor of the Housing News Report, named best newsletter by the National Association of Real Estate Editors in 2015 and 2016.
Episode Notes:
Narrator  This is The Norris Group’s real estate investor radio show the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever -changing real estate market hosted by author, investor and hard money lender, Bruce Norris.
Bruce Norris  Hi thanks for joining us, today, our special guest is Daren Blomquist. Daren’s focuses on analyzing and forecasting complex macro and micro economic data trends within the real estate market and greater industry to help Auction.com, build an increasingly efficient marketplace for distressed sellers and buyers. Prior to Auction.com, Daren served as Vice-President at Attom Data Solutions where he was widely recognized as an authority in the housing and mortgage industries. Blomquist’s reports have been cited by 1000s of media outlets nationwide, including the Wall Street Journal, the New York Times, USA TODAY. Blomquist also serves as the executive editor of the Housing News Report, named best newsletter by the National Association of real estate editors in 2015. And 2016. Darren, welcome.
Daren Blomquist  Thanks, Bruce. Good to be here.
Bruce Norris  Good. We’ve talked quite a few times before I put it right.
Daren Blomquist  Yes. Yes, sir.
Bruce Norris Okay.
Daren Blomquist  And I remember when you first came in, back when it was RealtyTrac. When I was at before Attom.
Bruce Norris  Yes.
Daren Blomquist  Previously called RealtyTrac. And I remember our executives brought you in. I think this was probably, ohh, it’s hard to remember exactly when but it was, it was a rat it was during, or in the aftermath of the last recession. And brought you in for your insights on what was, what you saw coming. And if I remember, you were pretty much spot on as you usually are.
Bruce Norris  Yeah, nothing like putting things in writing. Hmm.
Daren Blomquist  Well, this was just in a boardroom. You weren’t, we weren’t recording. So there’s no way to prove it either way, but.
Bruce Norris  Well, yeah. Well, we had a 400 page report that said it was going to go in one way. And you know, when, and you put things in writing too and stuck, you’re kind of stuck with it. And you get a reminder pretty regularly if it’s not right.
Daren Blomquist  That’s right. And, you know, I’ve been on both sides of it being right and being wrong. But I know back then we were, we, we didn’t know what we didn’t know. But we were just seeing, we were collecting this pre foreclosure data. This is around, you know, 2005. And we started seeing the numbers just spike. And so we said, let’s put out a report on this. Nobody’s talking about this. And the, like the Notice of Default numbers and things like that. And I remember the Mortgage Bankers Association and others not to pick on them. But you know, they were very incredulous with our, with our numbers, and in some ways, rightfully so we were kind of new to the marketplace. But it turned out that there was something going on.
Bruce Norris  Yeah, it would, it would be nice. that when you came up with a scenario, it felt and I did a lot of speaking at that time, too. And everything was wonderful in real estate. And here you are talking about this isn’t going to work out? Well. It was in everybody’s interest to say okay, well, let’s take a look at what they’re talking about and see if that’s a possibility.
Daren Blomquist  Yeah.
Bruce Norris  But things were so good, that you just didn’t even consider it. And that’s why, you know, see, you seem to be a fan of research and charts. And I that’s why I love that because to me, it takes the emotion out of the equation. I could look at a trend and go okay, look at that. When that happens, this next thing happens.
Daren Blomquist  Yeah.
Bruce Norris  Now you graduated. You graduated in 99, right? In college, well, what was your attitude toward owning that house at that time? Was it an absolute ‘I’ve got to do it’ or you already did it?
Daren Blomquist  No, I don’t think it was an absolute but it was a strong proclivity to ‘Yeah, this is the way to go.’ And I so I grew up, I was in Illinois, in the Midwest, where I went to college, and we rented I was a newspaper reporter was my first job in the middle of Illinois. Not making a ton of money, as you can imagine, and but I remember we rented our first place there in the middle of Illinois, it was $500 a month for like a two three bedroom house. Then we moved to California where my wife is from and, and that was 2001. And we bought our first house for I think 300 And we stayed in her with her parents for about six months to save up and start looking for houses.
Bruce Norris  Okay.
Daren Blomquist  First house was 325,000. And I thought that was crazy. As a Midwesterner. I thought this is how our, why should we be paying this much for a house? But then we bought at the right time.
Bruce Norris  Yeah.
Daren Blomquist  That was we, we closed I think in January of 22,020, or 2002, 20 years ago. Our first house yeah.
Bruce Norris  How does that how does that first cycle affect you when you, you know, when you, when you look at 2020. So, I always believe I always asked when people got started. So when I got started 1980 interest rates were 17 and a half percent have basically gone down for 40 years. And so when you came in, you just you were running into a six year cycle that was like, boom, crazy.
Daren Blomquist  Mm hmm.
Bruce Norris  So, and then all of a sudden, you had the greatest, you basically had the Great Depression, of real estate prices. So, how did that how does that impact you, when you when you look forward? You know, what are what do you look at today? And say, Oh, wow, that reminds me of something.
Daren Blomquist  Yeah, I think that’s a great question. And certainly, with my, that being my first cycle, is such a being such a dramatic cycle. Well, yeah, I’m sure colors the way I look at things, you know, both up and down. And so I certainly, I think, looking at home price appreciation, and affordability. There’s different and I know you look at that, but there’s different ways to look at that is, is a great. I mean, if you just look at home prices, it looks a lot more problematic. Now, I think then if you look at affordability and affordability is actually still pretty good. It’s it’s worsening for sure.
Bruce Norris  Yeah.
Daren Blomquist  That’s a that’s a big piece. Big piece for me, that I look at him in I mean, I’ve been saturated with the distress side of the market. And certainly here at Auction.com. You know, what we’re looking at is to leading our marketplace, which is somewhat counter cyclical, is seriously delinquent. loans that feed into into our marketplace, and those and then foreclosure starts, which would be notices of default list pendants. And the foreclosure starts at 10. Lower than they’ve ever been right.
Bruce Norris  Yeah, yeah.
Daren Blomquist  Seriously delinquent. You know, it’s a puzzling market. I’m sure you know this better than I do. But I’m sure every cycle is a little bit different has its own personality, right. And this one is is different in that we saw this huge spike in seriously delinquent loans. But those were caught up in all the programs, foreclosure prevention efforts that went into place because of the the pandemic. So, I would, I would say those as a couple key things that I’m looking at. There’s, there’s several others too, but that, that affordability piece, I think is really key.
Bruce Norris  I thought it was really interesting. You wrote a not a report an article about in January of 2020. Talking about could we have could we have a downturn, basically in real estate without a recession? And, and actually, I thought that was a really good conclusion, looking at the charts. So, you’re you were dead on, there’s, there were data that I looked at, Cal Poly Pomona has a has 1000 homes appraised every every six months, the same houses for the last 40 years. And like 25% of those were negative six months, from, say, July to January, July of 2019 to January of 2020. So, that was the first sign that you had a softness in the market. And then so that was a very reasonable conclusion to take a look at and go, Okay, it’s it’s going to be we have a great set of charts and we’re acting like we’ve never acted before we should be off to the races, and then the pandemic hits, and all of a sudden, wow. So, I’m just curious, what, what changed? What did the pandemic change to make real estate, ‘I got to have it.’
Daren Blomquist  Yeah, I think that’s interesting. And I do want to circle back I’ll answer that question, but I want to circle back one of the things that was interesting Auction.com, I got this new set of data, that was our own proprietary data.
Bruce Norris  That’s fun.
Daren Blomquist  Nobody in the market has. And it was really it’s transactional data. I mean, we’re selling at least pre pandemic, we were selling 50 to 60,000 properties a year on our platform.
Bruce Norris  Wow.
Daren Blomquist  It’s gone down. And so there’s a ton of, and we know, and it’s a bidding situation. So, we know what people are bidding, what this the sellers reserve is, and that sort of thing. So, you have all this kind of behavioral almost type of data. But one key piece, it’s, you know, for fairly straightforward is the sales rate when a property goes to that foreclosure option, the percentage of those properties that sell to real estate investors, or other buyers, mostly real estate investors. And that sales rate, I actually found seem to be some kind of a little bit of a leading indicator of the overall retail market, because investors are always looking six months ahead, or many times at least six months ahead. So, we were seeing that sales rate dip, bleeding into and I think that might have been one of the metrics I cited in that article, I don’t remember exactly. But that indicated that maybe investors had a little bit less confidence in the marketplace. And, and could be an indication of some softening. Now, that leads into that other question you asked, which is what happened during the pandemic. And we saw that sales rate Ecoline a lot of other metrics in the in the larger marketplace, but our sales rate went from about, it was about 35 to 40%, averaging about 35 to 40% of properties that went to auction actually sold.
Bruce Norris  Okay.
Daren Blomquist  It’s now hovering right around 60%. And it has been, you know, looking at this data just now. Really, since the beginning of 2021, it was going up during there was a dip, right after the pandemic hit, just you know, like a lot of charts you probably see related to the pandemic. But then investors quickly regained confidence and started buying more and more at the foreclosure auction. Now, part of that is also there was less and less inventory at the foreclosure auction to pick from, yeah, more of it, a higher percentage got picked up. But when I talk to our buyers, investors who are purchasing the platform, there was definitely in the first couple of months, there was uncertainty. And there was uncertainty around funding around, you know, the hard money that they’re getting from sources.
Bruce Norris  Right. Yeah.
Daren Blomquist  Big and, and how, you know, if that is that source of funding, and it continues to be available to me, and what, you know, what is the demand in the marketplace going to be but it quickly rebounded on the part of investors as they realized that there was the pandemic had this, I think surprising impact on people. And I actually just talked, I’m going to steal a quote from a investor, I talked to yesterday, who said, ‘a home became’ I don’t have to quote exactly, but ‘home became more important than ever,’ having a home and where you live became more important than ever, because you’re spending that you’re really spending the majority of your time at home.
Bruce Norris  Yeah.
Daren Blomquist  You know, in the past, it was probably split evenly, or maybe even you spent a little bit more time at work. And then all of a sudden, you’re spending the majority of time at home. And so that, that I think sums it up pretty well is, is that became more important to people in many different ways.
Bruce Norris  What was interesting, simultaneous to that demand going crazy. The other group of people that had them their own houses listed, pulled 45% of them off the market. So, now you had all this demand landing on half of the houses. And it’s really hard to find a place that has more than a month of inventory.
Daren Blomquist  Right.
Bruce Norris  And so, you know, the offers see that. What’s interesting about what you said about the auction business, and I and I understand that, almost that’s 100% of the opinion that that’s distressed sellers. But in this marketplace, I don’t know that it wouldn’t be the best place for a seller to sell a property because it’s exposed. How many clients do you have that repetitive? A lot?
Daren Blomquist  Yeah, you mean are you buying? Are you talking about buyers?
Bruce Norris  Yeah, no, it’s let’s say I had a new track of homes. If I had a price in mind, I bet you if I auction them off at Auction.com they go for more. Just because you have a lot of people looking at it.
Daren Blomquist  Yeah, I think that’s right now we need to. And I love that because we’d love to expand the options. We’re, we may not be ready right away to do it. But we’d love to expand the options beyond the classic distressed property. But we’ve made one step in that direction with we started to do pre foreclosure auctions. These are basically properties that the lenders come to us and say, This person is delinquent. They have, we haven’t foreclosed on them. But we think we actually think this is a short sale. And what we’re finding is we put it on our platform, it’s also listed on the MLS, about half the time, we get a higher offer than the MLS, so.
Bruce Norris  Yeah.
Daren Blomquist  I think that about half the time we’re getting a higher offer. And the higher offers are actually an average of about 30, 19%, higher $35,000 higher than the MLS. So, that’s that, I think proves what you just your point, the only caveat, I would say is our buyers are conditioned to buy distressed properties that need better value add opportunities. So we’d have to, you know…
Bruce Norris  You’d have to increase your clientele for another group. A retail, a retail group? Well, you know, if you had the right inventory, they come and visit your site, it’s kind of interesting in other countries, auctions are how everything is sold in real estate. It’s common, it’s not a desperate situation. It’s just the way it’s done. But, you know, in, in our country, definitely. You always think of auctions. Oh, you know, poor sellers got some problem.
Daren Blomquist  Right.
Bruce Norris  Sometimes they just want a bigger audience. Because you guys have had, you know, years in producing a lot of audience you know, what’s interesting about Auction.com, the way that company started, was auctioning off a friend of mines tracked at the beginning of the crash.
Daren Blomquist  Really?
Bruce Norris  Yeah. And, and and to have that grow to this size of a business, when there was established auction companies for a long time. That’s a, that’s actually an amazing accomplishment to me.
Daren Blomquist  Yeah, and I can’t claim to be a part of that, those early years. But yeah, I’m impressed with the growth that this company has seen. And, and really, that, I think, the attitude is about trying to, to make that on the auction platform as transparent as possible. So, that you do achieve that. You know, that highest and best offer for for the property. And that’s been and I would say a really big, early on it was REO prop, the focus was REO properties, bank-owned properties, right. And that was big, especially during the last crisis. But the shift also became one of our keys to growth came when we started auctioning at the foreclosure auction.
Bruce Norris  Absolutely dominated that really quickly.
Daren Blomquist  And treating that because banks in the past really treated that as a just a hoop they had to jump through to get to REO.
Bruce Norris  That’s right.
Daren Blomquist  Yeah, I mean, state the state statute requires you have to put it up for auction at the courthouse steps. And Auction.com said, Why don’t you use that as an opportunity to actually sell the property? So, and we still even with all that, only, like I said earlier, 30 to 40% 35 to 40%, pre pandemic of those properties were selling, but if you go back before Auction.com, it was more like 15 to 20%. So that would sell.
Bruce Norris  How big is when? When is when did the shift go from? We’re going to do a live auction to we do it online?
Daren Blomquist  Well, we’re still in. We’re still working on that. I mean, the
Bruce Norris  Okay.
Daren Blomquist  REO auctions are all online. Yeah, there’s no physical requirement, but the foreclosure auctions in non judicial states like California, it’s a little bit easier to move that online. But it’s still, there’s still a physical auction that has to take place. So, it requires actually the changing of a state statute to do that. And Ohio is one state where, actually Florida where you are.
Bruce Norris  Yeah.
Daren Blomquist  Those are the two states that allow the foreclosure auctions. to take place online, okay. And we see when we look at our data we see that’s actually in general produces better results because you get a wider audience.
Bruce Norris  Sure.
Daren Blomquist  A bigger audience for the properties. It’s not whoever can just show up at the, at the courthouse steps at a certain date and time. But, I mean, it’s still ,it’s still constrained by date and time, but at least you can be doing it from anywhere.
Bruce Norris  Yeah…
Daren Blomquist  …with internet connection.
Bruce Norris  I would think it would expand your buyer pool by a lot.
Daren Blomquist  It does. Yeah. Yeah, I’ve been recently looking at some of the data in Ohio. And we, we see, because some of the auctions in Ohio are in person handled by the sheriff, and some are online. And so we can compare those two and we see the metrics. The sales rate, the price to value that we get for the properties is, is definitely higher with the online auctions. And one thing not to be, not to pitch like Auction.com’s product, but it does tie into your question is that we One way we’re kind of getting around that in states that don’t have the statute changed, is we do have something called Remote bid. So, if you get the Auction.com mobile app, you can participate in at least in some states, and some counties in California is one of these. You can participate in the auction on your phone. So, we have basically we’re at the auction crime, the auction Auction.com. And through the through our mobile app, if someone places a bid, that bid is coming in, and we’re entering that bid into the auction process. So, that is, that’s a step in that direction as well toward removing some of that friction and increasing that the pool of buyers that we have at the foreclosure auction.
Bruce Norris Are, are your auctions always sell or reserve or they’re ever at any absolute auctions?
Daren Blomquist  As far as I know, they’re all seller reserve the, the REO auctions there, there’s always that seller reserve in place. I actually could be wrong on that. But there may be some exceptions there where, where the the seller is just ready to get rid of the property.
Bruce Norris  Probably rare, not it’s probably the exception, not the norm. Okay.
Daren Blomquist  Now that the reserve, the reserve can be, you know, somewhat flexible, for lack of a better word, I guess where…
Bruce Norris  The seller can make a final decision.
Daren Blomquist  Yep. They say, Well, this is the highest, we’ve put it up for auction, we got a bunch of bids. It’s the market is telling us this property is worth X, even our reserve is a little bit higher than that. We’ll go ahead and and take that x. With the foreclosure auctions, the reserve automatically is the the amount owed on the loan. And the they can’t set the reserve higher than that.
Bruce Norris  Correct.
Daren Blomquist  So if it’s a, if it’s a property that’s worth $100,000, or $500,000, the loan is 400,000. They still, their maximum reserve on those foreclosure auctions in that case would be the 400,000.
Bruce Norris  Correct.
Daren Blomquist  And so there. And now if it goes above that, which might in that situation, then the remaining amount would potentially be surplus funds that would go back to the distressed homeowner.
Bruce Norris  Correct. You know, I had never seen a chart that you have at your LinkedIn site. And it was it was pretty cool to see. And I’m actually disappointed. I had never seen it before. But I’m happy I saw today was vacancy chart, the number of vacant homes was once like way, way more. And now there, it’s like the other end of the spectrum. There’s a lotm a lot less.
Daren Blomquist  Yeah, I think I actually that was nice. Hopefully I gave credit, but I shared that from someone else who, who was sharing that I believe. I think it was the chief economist at Freddie Mac.
Bruce Norris  I think, I think you might be…
Daren Blomquist  Len Kiefer, Yeah. So and I yeah, I mean, I found that very interesting that, you know, if you look the at the average vacancy rate over time, is the…
Bruce Norris  Is that a vacancy rate, excuse me, is that a vacancy rate or vacant homes? That’s sort of different. It’s kind of a different. To me, it’s different. It’s…
Daren Blomquist  Yeah, centage of I think it was a percentage of homes that were vacant but…
Bruce Norris  Yes, that’s correct.
Daren Blomquist  Yeah. So, yeah, so sorry, not not vacancy rate in that sense, but yeah, I mean, if you look at that, kind of average percentage. And what we are at now and then extrapolate how many basically the under supply of homes for sale and for rent, I believe the number is based on their calculations was about 1.9 million under supply versus the opposite end of the spectrum back during the during the last housing boom.
Bruce Norris  Yeah, let me, Joey. Let me just add one other thing, because it’s the kind of the same, it’s kind of the same subject, over the last and I’m going to forget the exact years, but I think it’s the last eight years. There were about 12 million households created. But there were only seven and a half million new homes built. So, both of those trends lead to a housing shortage, that I don’t know how long that takes I’ve never really dealt with. Okay, well, how do you go and reverse that? Because that doesn’t seem like that’s going to take months?
Daren Blomquist  Right. Yeah.
Bruce Norris  Joey, go ahead. Yeah. Good.
Joey Romero  Daren, are you guys nationwide?
Daren Blomquist  Yes.
Joey Romero  So, then then I have a question. Two parts. Where’s the bulk of your inventory coming from? And does state legislature have anything to do with it? In other words, is, is it you know, states like California, where it’s harder to get people out of their homes. You know, keeping that inventory low for you guys, that how does that work for you?
Daren Blomquist Yeah, I mean, the, the our inventory is nationwide. And you know, it kind of aligns with the size of the states. Honestly, but I would lean into the pandemic, and it’s still true. A lot of the our, our inventory was disproportionately in the northeast of the country. Places like New York and New Jersey would stand out. Because what we were seeing there is still the long tail of inventory leftover from the last housing crisis coming through even through 2019 we were seeing this. And I think we’ll see this even pick back up potentially, after some of it now that some of the foreclosure moratorium are are lifted. But yeah, in the northeast, which, you know, you think California is tough. New York and New Jersey were really tough in terms of foreclosing, and we saw extremely long foreclosure timelines in those states. And so that’s actually where we were, we had been seeing the most inventory, I was just looking here, kind of as we’re starting to see the foreclosure volume return, which we slowly are seeing that now, in the last couple of quarters, really in the fourth quarter. The places where the way that we look at it is percentage of pre pandemic volume that we’re seeing come back. And the places that are returning the fastest are the places where the foreclosure or tend to be the places where the foreclosure process is the, is the fastest as well. And the easiest in a sense. And so you see places like Oklahoma, is actually at 108% of its pre pandemic levels in terms of foreclosure volume, Indiana is at 86%. See, those are the two ones that stand out that are high volume and also high percentage. California actually is at 50% of its pre pandemic volume as of the fourth quarter. I was actually surprised that we’re seeing volume come back in California faster than some other states. If we look at New York, it’s you know, it’s only at 17% of its pre pandemic volume, and New Jersey is at 18%. So, those states, again, similar to the last go around, and again, I don’t want to, well, not again, but I don’t want to compare this to the last recession and saying it’s the same but the states where that foreclosure process is the most restrictive is where we’re seeing the foreclosure volume. Now, post moratorium return the slowest.
Bruce Norris  When, when we talk about 2020, though, when you look at a foreclosure chart, now go backwards. 2020 is probably 5% of the peak before right. Far as the number of foreclosures in 2020. There’s there almost aren’t any when you look at a chart, you know having a 50% increase over almost nothing is it sound?
Daren Blomquist  Yeah, it’s not a it’s not a 50% increase. It’s a, it’s 50%. So, we looked at the fourth quarter of 2021 compared to be actually the third quarter of 2019 And we’re at 50. In California we’re at 50% of the third quarter 2019 levels but to your point, even in 2019.
Bruce Norris  Yeah.
Daren Blomquist  We were seeing very low foreclosure volume so if you take that as a percentage of say 2009 levels yeah look likely be you know, I would guess under 20%.
Narrator  For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.
Aaron Norris  The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.