Since the COVID-19 pandemic foreclosure moratorium lifted in January 2022, the higher the home equity, the lower chance that a foreclosure is completed — at least at the national level. The foreclosure completion rate has averaged 24.8% monthly, meaning that about one in four properties scheduled for foreclosure auction each month makes it to the auction and completes the foreclosure process.
The properties are either sold to a third-party buyer or revert to the foreclosing lender as real estate owned, according to proprietary data from Auction.com, which accounts for close to half of all foreclosure auctions nationwide. By comparison, about one in three properties (33.8%) scheduled for foreclosure auction each month completed the foreclosure process on average between 2015 and 2019.
Record-high home equity levels resulting from skyrocketing home prices during the pandemic have helped completed foreclosure auction rates to remain subdued. Median home prices nationwide increased 52% between March 2020 and June 2024, according to data from the National Association of Realtors, and that has resulted in $32.8 trillion in home equity nationwide as of the first quarter of 2024 — a record high, according to the Federal Reserve.
The negative correlation between higher home equity and lower foreclosure completion rates has been particularly strong since the lifting of the nationwide foreclosure moratorium on government-backed mortgages in January 2022. (The actual moratorium ended in July 2021, but a de facto extension pushed it to the beginning of the next year.) Since then, the amount of potential equity for properties scheduled for foreclosure auction — calculated as the difference between the estimated “as-is” value of the property and the estimated total debt owed to the foreclosing lender — reliably predicts the foreclosure auction completion rate with a less than 1% standard error rate.
The correlation generally trends true across the 50 states, with mostly higher foreclosure auction completion rates in states where properties brought to foreclosure auction have lower equity, and vice versa. But the correlation appears to break down in a few high-volume states, where the completed foreclosure rate is significantly lower than expected given the equity profile of properties scheduled for auction in those states.
These states include New Jersey, California, Pennsylvania and Nevada — all of which have actual foreclosure completion rates between January 2022 and July 2024 that are at least 30% lower than predicted by the home equity levels of properties being scheduled for foreclosure auction in those states.
One important reason for the lower-than-expected foreclosure completion rates in these states is the above-average rate of scheduled auctions per property. While a property typically is only scheduled for a foreclosure auction once in a month, if the auction that month is canceled or postponed, the property could be scheduled again in a future month.
During the 2022-2024 timeframe, properties were scheduled for auction an average of 1.72 times nationwide, but the rate was substantially higher in: New Jersey (2.52 scheduled auctions per property), California (2.66), Pennsylvania (2.50) and Nevada (2.17).
The lower completed foreclosure auction rates may, at first glance, appear to show that loss mitigation efforts in those states are doing a better job of helping distressed homeowners avoid foreclosure. But at least part of the above-average performance in these states is a mirage created by an above-average incidence of properties cycling in and out of foreclosure. More distressed homeowners may be avoiding foreclosure in the short term in these states, but there are also more distressed homeowners in these states who are caught up in a downward spiral of distress, moving in and out of foreclosure without landing on a long-term solution. The longer homeowners stay in such a downward spiral, the more home equity they are losing, an earlier Auction.com analysis has found.
Author
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Daren Blomquist is vice president of market economics at Auction.com. In this role, Blomquist analyzes and forecasts complex macroeconomic and microeconomic data trends to provide value to both buyers and sellers using the platform. Blomquist has been cited by thousands of media outlets nationwide, including major news networks, The Wall Street Journal, The New York Times and USA Today. Prior to Auction.com, Blomquist worked at Attom Data Solutions.