The Exchange: Daren Blomquist – The MortgagePoint

For investors, the evolving distressed market is creating selective opportunities rather than a flood of fire-sale-priced properties.

Demand remains strongest for distressed single-family homes, build-to-rent communities, and well-located multifamily assets where operational improvements can generate long-term value. Industry experts say successful investors are focusing on disciplined underwriting, local market fundamentals, and operational expertise instead of relying on rapid price appreciation.

In the current economic environment, distressed real estate is less about finding deeply discounted bargains—although discounts are starting to increase as auction sellers adjust pricing lower to match sluggish retail market conditions—and more about identifying assets with solid fundamentals that can be repositioned or stabilized as market conditions gradually improve. Daren Blomquist, SVP, Head of Market Economics at Auction.com, recently answered questions about the state of the investment market.

Q: What are you seeing in Auction.com’s data that suggests where institutional and individual investors are placing their bets today?

Blomquist: Auction.com data, including buyer surveys and actual sales data, indicates that the large institutional investors are not placing their bets in the distressed market: 94% of our buyers describe themselves as local community developers or owner-occupants, and 96% say they purchased 10 or fewer properties last year. Our marketplace in this market is dominated by the individual investors—typically local community developers who know their local area well and stick to investing there.

We did see a broad-based increase in demand at auction (measured by sales rate: the percentage of properties available for auction that sell to third-party buyers) in the second quarter of this year. About 55% of markets saw a year-over-year increase in sales rate. The highest sales rates were led by a few Northeast and Rust Belt markets: Boston, Milwaukee, Dayton (Ohio), followed by a couple of Southeast markets: Mobile (Alabama) and Lubbock (Texas).

The biggest increases in demand were in Southeast and Sunbelt markets: Tucson, Arizona; Killeen Texas; Ocala, Florida; Winston-Salem, North Carolina; and Sarasota, Florida. These are markets that have been through a correction in the last few years and may be seen as upside opportunities for investors.

The broad-based nature of the demand increase is likely due to some large-volume auction sellers adjusting their pricing lower in the second quarter.

Q: Which property segments are showing the greatest momentum, and what factors are driving those shifts?

We are seeing growing momentum in the distressed market overall, with both foreclosure auctions and REO auctions rising on an annual basis for six consecutive quarters through the second quarter of this year. To put it in
perspective, foreclosure auctions are still about 30% below their pre-pandemic levels, and REO auctions are still
about 50% below their pre-pandemic levels. The growing momentum is caused by a combination of deferred distress from the last few years that is finally moving through the foreclosure pipeline, along with a troubled batch of loans from 2022 onward. Those loans are more vulnerable to foreclosure because they represent homeowners who bought near the top of the market, so they have little equity cushion. Meanwhile, rapidly rising insurance costs and property taxes are stretching many of those homeowners financially.

One trend that has emerged in the last five years is that more homeowners facing foreclosure are selling pre-foreclosure to avoid losing their properties at foreclosure auction. This is typically beneficial to everyone involved—the homeowner, the mortgage servicer, the mortgage investor, the government agency (and, by extension, the taxpayers) backing the loan, and the new buyer. However, these pre-foreclosure sales could become more difficult going forward, as more of them will likely be short sales. The industry should be preparing for these now.

Q: Many expected higher interest rates to significantly reduce investor demand, yet activity has remained
relatively resilient in many markets. What’s allowing investors to stay active despite the financing environment?

The underlying fundamentals of the housing market remain healthy in most markets, with strong demand for housing, particularly affordable housing. There are certainly markets that have undergone a correction in prices over the past few years, but the free market has done its job in those markets, and they have corrected back to more fundamentally sound [levels]. Investors are still able to survive in this environment as long as they remain
disciplined. Particularly, investors buying distressed properties at auction have a discount cushion to work with. Even with the cost of renovations, that cushion allows them to realize a decent return while still delivering affordable housing supply back to the market.

Q: Are you seeing meaningful differences between large institutional investors and local or regional investors in terms of acquisition strategies, pricing discipline, or target markets?

Many of the large institutional investors operating now got their start during the Great Recession housing downturn, buying properties in large volumes at foreclosure auctions and REO auctions.

However, that was a relatively short-term strategy. Inventory at auction dried up—at least, the volume of inventory needed to fuel the large institutional investor engines. Also, the type of home available at auction changed, from mostly recently built homes in good condition to older homes in highly distressed condition—more typical of the inventory available at auction. So, the large institutional investors have turned to different acquisition strategies, buying off the retail market or even building themselves.

Meanwhile, the local investors are employing a variety of strategies, from buying distressed to even evolving
into building new homes. The local community developer investors tend to be willing to perform extensive renovations on properties.

Q: Distressed inventory have been low, but foreclosure activity has gradually normalized. How do you see the distressed property pipeline evolving over the next 12 to 24 months, and what will that mean for investors?

We expect the steady increase in foreclosure auction volume that we’ve seen over the past year and a half to
continue at least into 2027. There is still a good amount of deferred distress from the pandemic foreclosure
prevention efforts, particularly in the FHA portfolio. That deferred distress has shown up in the last six months
in the form of a doubling of seriously delinquent inventory in the FHA-insured book, from about 266,000 in
October 2025 to about 533,000 in May 2026. Scheduled foreclosure auction volume with Auction.com, a leading
indicator of future foreclosure auction volume, continues to trend higher at least through the end of this year.

Q: Which metro areas or regions stand out as emerging investment opportunities, and what characteristics are making those markets attractive compared with more traditional investment hubs?

While the Northeast and Rust Belt remain solid investing opportunities thanks to the low retail inventory
there—representing less competition for investors—the emerging opportunity over the next year will likely be the areas of the Southeast and Sunbelt that have been hardest hit by the housing market correction of the last two years.

Prices have corrected in many of those markets, approaching levels that make sense for investors. Paralleling that, sellers at foreclosure auctions have been adjusting prices lower to meet the market in those areas. We are seeing demand from investors buying at auction pick up as pricing adjusts lower in those markets.

Q: Technology and data analytics continue to reshape real estate investing. How are investors using market intelligence, AI, or predictive analytics to gain an edge, and how is Auction.com adapting to those
changes?

Large institutional investors are undoubtedly using cutting-edge AI and data analytics, but local investors
are famously old-school and still often come to courthouse auctions armed with printouts and envelopes full of
cashier’s checks. We do see a new wave of local investors and other buyers (sometimes even owner-occupant
buyers) emerging who are more willing to turn to newer technology and AI tools. At Auction.com, we think we are staying ahead of this curve, developing Remote Bid in 2020. That allows foreclosure auction buyers to bid remotely on foreclosure auctions from anywhere with internet access and transfer funds electronically. We’ve more recently put an AI-powered chat on our website, allowing prospective buyers to ask questions about the somewhat complex foreclosure process and receive reliable and relevant answers instantly.

Q: For lenders and servicers managing distressed assets, what trends should they be watching that could affect asset disposition strategies or buyer demand over the next year?

Lenders and servicers (and government agencies backing many loans these days) should be keeping a close
eye on loss severity. For the most part, they have been and continue to be very vigilant on this front. However, the market has been shifting over the past two years, resulting in spiking loss severity rates—particularly for properties that revert to REO and are sold on the retail market due to the longer timelines to sell in that scenario. We are seeing auction sellers respond to this by adjusting pricing lower at foreclosure auction, which makes it more likely to sell at that early stage and avoid the compounding costs of taking back a property as REO and trying to sell it on the retail market.

Demand from local investors is still solid, but it is disciplined when it comes to price. Investors will step up and buy if the pricing is right; it doesn’t have to be a fire sale situation. Lenders and servicers should take advantage of this dynamic to sell as early as possible and minimize loss severity.

Auction.com has also introduced a pre-foreclosure sales option called SmartSale that allows individual homeowners facing foreclosure (and anyone else, for that matter) to sell and avoid foreclosure while also protecting any equity they have in the property. Servicers can minimize loss severity even more by providing distressed homeowners with options like SmartSale to sell pre-foreclosure. Even if the property ends up selling short, that will typically be a better outcome for the homeowner and the servicer.

Q: What misconceptions do you think people still have about today’s real estate investment landscape, particularly when it comes to distressed properties and foreclosure auctions?

That foreclosure and bank-owned auctions are dominated by large institutional investors. Additionally, regular buyers, even first-time homebuyers, cannot buy at auction. About 20% of our buyers identify themselves as owner-occupants, and our analysis of public record data backs that up. I think this may surprise many people, but we have some wonderful stories of folks who have bought a home to live in, even their first home, using Auction.com. Go to Auction.com/inthenews to watch some of these stories.

Q: Looking ahead to 2027, what indicators are you watching most closely that will determine whether the investment market accelerates, stabilizes, or cools further?

Mortgage rates continue to be high, although investors and many others in the market have adjusted to the
higher-for-longer rates. Assuming those continue to be elevated, we expect the housing market to continue to stay tight and continue in the slow-motion correction that we’ve been seeing for the last couple of years. Some type of economic shock that results in spiking unemployment rates is also something to keep an eye on. That could result in this gradually rising tide of distress turning into a bigger wave that could have more widespread implications for the housing market.