Protection in a shifting market

Last week I was in Dallas attending the Five Star conference. This is a premier mortgage conference that attracts subject matter experts and professionals representing: mortgage servicers, lenders, federal government agencies, financial services law firms, service providers, investors, and real estate organizations from across the nation. In short all the heavy hitters in the REO space were there. Typically, Real Estate Owned are listings that have failed to sell during the foreclosure process and become owned by a mortgage lender, bank or the mortgage investor. My motivation for attending the conference was to hear from the experts  about foreclosures, defaults and changing headwinds in the real estate market. 

 This is what I learned.... 

Going into next year we will see an uptick in the amount of foreclosures coming on  the market. At present, services and asset managers are working off inventory from

two plus years ago [due to the pandemic]. There are still people on forbearance plans and modification plans. But it’s primarily starting with reverse mortgages.  While some REO inventories remain low ( Fannie and Freddie have only 9500 assets on the market nationwide ) of concern, HUD is running 11% default on their current portfolio of loans. These loans are those that are held by the lower end of the market where borrowers are currently paying up to 30% of their household income for their mortgage. This is a significantly higher proportion of their monthly income-higher than it has been in the past. Most of those borrowers have a combined household income of less that $100k a year. 

“Foreclosure starts are beginning to spike,” noted Daren Blomquist, VP of Market Economics for Of interest, though, is where the bulk of these starts are. As of right now the top five states where foreclosures are beginning to rise are IL, NY, NJ, CA and NV.  Interestingly, we are not seeing many institutional investors in the distressed sales space right now. 

Unemployment is the elephant in the room as the economy cools. There are indications that companies are starting hiring freezes and layoffs are expected to start in the first quarter as a result of the Fed’s efforts to battle inflation by increasing interest rates.  Experts believe that we will see a steady increase in the number of foreclosures coming to the market. This is expected to start in the Midwest and extend to the states on the East and West Coast. A vast number of these foreclosures will not come onto the market, but may be sold to nonprofits working with local agencies to revitalize areas and encourage owner occupant purchase or be sold on the courthouse steps.  There is a huge push from federal agencies towards affordable housing and to preserve and encourage owner occupant purchases. 

Of those that do come to the market, Asset Managers that I have worked with in the past have informed us that they intend to rehab those properties prior to coming to market. Rehabbing these properties will yield a higher return in order to recoup some of the costs incurred in the foreclosure process. 

We do not expect to see the deluge of foreclosures that we saw in 2008, which occurred primarily due to questionable lending practices. This time around we expect a steady stream of foreclosures coming on the market and expect it to last going into 2026. 



What does this mean for us in GA. 

Georgia was one of the states that thrived during the pandemic and saw a record number of transplants coming in from states that had more restrictive Covid guidelines. Those who relocated to Georgia were attracted to the state for it's economy and relatively low cost of living. Georgia has also been one of the more business friendly states in the nation. We have an economy that is thriving and bringing in companies like Google, Microsoft (currently in the process of expanding their footprint in the Grove Park area) and Amazon. 

Georgia is also the easiest State in the nation regarding the foreclose process. We have non-judicial foreclosure which gives lenders the right to foreclose if there are two months of missed payments.  The metro Atlanta area has virtually NO foreclosures on the retail market right now. The few that are in foreclosure are being sold on the courthouse steps on the first Tuesday of every month. 

We believe that GA is in a great position to ride out a recession. Our economy is expected to grow by 4% in 2022.  There is still a lot of investor activity primarily on the South West and West side of the city. Prices are expected to remain flat this next year. If we have a more severe downturn, there may potentially be up to a 10% loss of value. This is still not too bad considering that in the last two years prices of real estate have appreciated an astounding 31%.  Winder, Lawrenceville, Temple and Kennesaw are expected to see  growth and demand this year in the housing space.   Additionally, areas outside of Metro Atlanta, like Macon, are seeing a burst of investor activity in the multifamily and industrial spaces.  Despite the doom and gloom forecast that we may hear on the news about the national picture, it's important to know that housing market analysis should be considered with a very hyper local perspective…and Georgia is expected to stay above the national trend!