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  Thanks for joining us. My name is Bruce Norris. And today our special guest is Daren Blomquist, Vice President and marketing economist at Auction.com. What chart do you look at to say that, that’s a domino chart, that’s going to create a negative reaction that’s going to have some legs and cause more foreclosures? Because I guess, you know, if I’m in your business, I would like to know the events that get me there. So, what do you think that event is? And do you see any of that setting up for domino effect?
Daren Blomquist  I guess I’ll answer the second half. First, and I don’t I actually don’t see a anything triggering a huge, you know, this domino effect, that creates a big wave of foreclosures going forward, at least at this point. Now, what might do that is, right now what I’m looking at is, is inflation as, as a trigger, that could push, eventually push the economy into recession. And we do see an uptick, it’s probably not surprising an uptick in and just in the distress market, during and after all, not just the last recession. But if we go back to previous recessions, we see that that increase, so that’s certainly anything that would trigger some type of recession. Even if you don’t see home prices, decrease much or, or any, we do see consistently an uptick in delinquency and foreclosure during previous recessions. So, that’s, that’s what I’m looking at right now, I think is a domino, is inflation going up pushing the Fed to become contractionary in their monetary policy which, which pushes at least the economy toward recession if they’re not into recession. And, and that, and I guess the way it did is like, I feel it, I think John Burns has done a good job of explaining how right now looks, it doesn’t look like 2006, as much as it looks like maybe 2001, 2002. Or at least it’s setting up a scenario that could, could look like 2001-2002, where it’s not the pandemic and the pandemic recession, that triggers an increase in, in the distress market, but it’s the response to those that could potentially domino into a recession down the road.
Bruce Norris  Okay. Have you looked at, you know, you joined the party in 20, or 2000 approximately, have you taken time and looking? You just mentioned a couple. Have you looked back at other California, like from 1980 on? Do you see? Do you see any similarities because they’re, they’re very different outcomes. That’s what’s really interesting to me. And looking at the, the, let’s say, 8283 cycle, where interest rates were crazy, unemployment was over 10% 25 months of inventory. And then for those three years, we don’t have any price declines. Which you kind of shake your head and go, Okay, wow, that’s that’s rather amazing. And prior to that, 74 to 80, interest rates go from seven and a half to 15. And in that cycle, prices tripled. median price went from 34 to 102. So, you know, that’s when, when people say, Okay, well, when interest rates go up, of course, prices go down. Well, that’s a pretty big example said, well, not necessarily. So, it’s going to be interesting to see how this inflation plays out. One of the things Cal Poly did that was pretty cool. During the 70s, is they had a general contractor bid out the same house every year. So, you could actually see the price progression of the same house every year for a decade. And they also charted the labor costs for the painter and for the plumber and all that. So, what was really interesting is that while interest rates were going up wages doubled for those people. And, and oddly enough, because of interest rates, they actually could afford to 85% of what they could have in 70 in 1980, with their wages doubling. So, inflation hurts the buying power, for sure. But you know that we’re just so, we’re so used to seeing interest rates at two or three or 4%. That it might be a real shocker to have a 6% mortgage someday.
Daren Blomquist Â
Yes, yeah, absolutely. And I have, I have actually, some of the best data that we have is in California. So, and you probably know this, too. But you know, some of the public record data is goes back, doesn’t go back as far and other states as it does in California. So, I’ve looked at that, but I can’t claim to probably have looked at as deeply as you have. But I know that there’s been what we did see one of the things that stood out in California, and you’ll probably be able to correct me if I’m wrong on this, but I think it was in the 80s. Where there was, wasn’t right. In line with the recession. It was I think, in the mid, mid 80s or maybe this was the 90s. I apologize. But we did see a price. Maybe this was your California crash scenario. But we actually saw prices, absent of at least very close to a recession. prices decline in California.
Bruce Norris  Yeah, that was 90 to 96.
Daren Blomquist  Yeah.
Bruce Norris  Yeah, yeah, at about a 10%. Total decline from about 200 to 180. Very methodical. And what was interesting, and this is kind of what, so I look at all these different recessions and try to say, Okay, well, what’s the, what causes the price damage? So, in 2009, you got a, what a 4% mortgage rate. And you have in 1980, you have a 15 and a half, you have unemployment be the same. But the difference to me was that the market became dominated by foreclosures, they were the, that was the comp, REOs were the comp. So, if you look in the MLS 80% of the volume of sales was an REO. In 1980, it was 25. So, as an appraiser, you can you could ignore one comp and four, and go, that’s not the, that’s not the market, you can ignore eight and 10. And that REO became the market, whatever. So, when you guys, let’s say you didn’t sell it. And a lot of it’s interesting, because there was a lot of more optimism on the lender side, not letting those sell because they were owed. Here’s a good example, we had a house that we bought in Moreno Valley, for 64 grand that had gone for 365.
Daren Blomquist  Wow.
Bruce Norris  If you’re, if you’re a lender with 100% loan, you know, you’re not going to open the bid at 65, grand, you’re going to hey, we’re going to take that back as an REO. And then it would go through a series of REO listing agents. So they’d say, Well, it’s trying to get to 80 to 50 150. Okay, we’ll take 64. Well, when you got 64, and eight out of 10 sales were in that ballpark? Well, what’s the market? I mean, it’s crushed. Yeah. And then it becomes its own worst enemy, because everybody’s underwater. So, you know, that’s, I think, when I look forward, I say, Okay, well, what, what are the safeguards in place that prevent that this time? And I think there’s some pretty good ones. So I like to like your take on that, as far as what do you think would prevent a big glut of foreclosures coming?
Daren Blomquist  Yeah, I mean, I think everybody the shadow of the Great Recession is still pretty, pretty dominant in a lot of folks minds, which is why we still have I think those safeguards in place to present, prevent that scenario from playing out again. But yeah, I think that’s a really good point about the, the really, I think one huge difference. I mean, foreclosures are typically the exception, not the rule and the became the rule during the last recession, and maybe can’t and it was properties that and proposers, typically properties that are highly distressed in terms of their condition. And that was also became somewhat flipped, I think, during the last recession, like properties that were built two years ago, or were being foreclosed on right, and not highly distressed. And so it became the market and, and right now, I mean, I think sir, I do think the forbearance program and the combination of the forbearance and moratorium are very successful in just preventing a, you know, if there were there had been no policy put in place to prevent foreclosures, I think we could have seen this somewhat. Just because everybody was so scared in the early days of the pandemic, that we could have seen a surge of foreclosures that could have been dominoed or, or be steamrolled into a more market wide problem. And so those policies really did help to say, ‘Okay, let’s just take a pause and make sure we’re not overreacting’ type of thing. And, and that has been, been very successful, I think. And, and even worse, as we’re seeing the numbers recover, we’re not seeing really much evidence. I mean, we’re, that there’s there’s a big surge of foreclosures coming. We see this kind of steady, in our numbers, we see this kind of steady, steadily rising tide. But we’re still basically 40% nationwide, about 40% of pre pandemic levels. Now, I think there could be a danger in, you’ll probably start seeing headlines over the next few months that foreclosures are increasing.
Bruce Norris  Yeah. 300%.
Daren Blomquist  Yeah, the point you were making earlier, and, and that may get people a little bit twisted. But I think as long as we keep in mind that even with a tenfold increase in foreclosures right now, we’d probably be back to about pre pandemic levels.
Bruce Norris  Yeah. Which was not damaging to price at all.
Daren Blomquist  No, I mean, it was a very small percentage of the market. And they were distressed properties. And yeah, and really, that’s where we’d like, we think there does need to be almost at least I should say, I think I don’t want to speak too much on the behalf of Auction.com, but you know, the more I see this, and the more I talk to investors, we’re dealing with these properties is there does need to be an outlet, especially as the America’s housing stock ages, for that, housing, there’s a certain percentage of small percentage of that housing stock that is going to be distressed and needs to be revitalized. And, and that’s, that’s a healthy way for the market to operate rather than then foreclosures becoming a dominant part of the market.
Bruce Norris  What, what is the, you know, you guys, your client is basically not just the buyer, but also the lender base that says, okay, and you already intimated that they were looking for ways not to have an REO. So, I guess that’s what I wanted to know is, what’s their attitude about forbearance, making a deal, doing a short sale before the auction, all of those things to not end up with inventory? Is that, is that their goal?
Daren Blomquist  I would say, Yeah, by and large, there are a couple exceptions, maybe of and I won’t name names, but clients who, not your typical banks, but the type of clients who bought up a lot of non performing loans.
Bruce Norris  Oh, sure.
Daren Blomquist  The way…
Bruce Norris  That’s different.
Daren Blomquist  And they’re, so there’s a couple exceptions, where they’re looking actually to, to build a rental empire out of REO. I don’t know how well that’s working out. But for them by and large, most, most of the banks and everything is really colored very heavily by what Fannie, Freddie and FHA say. And those three are very much on board with trying to trying to create the best outcomes for, for neighborhoods for homeownership with these distressed dispositions, and in general. It was in general, Yeah, they do. They’ve been convinced by our argument that it’s actually better for them financially and also better for neighborhoods if the property is sold before REO. So, I there’s there’s what our CEO calls that. There’s still vestiges of what our CEO calls the REO industrial complex, which some of these banks I mean, they have these big departments that deal with REO and there’s a certain amount of self interest to feed that beast. But that is I think that’s starting to to fade.
Bruce Norris  Okay. Do you find it easier to predict trends long term or short term?
Daren Blomquist  It’s, I would say short term is, is, is more accurate. And long term is, in some ways easier because you can, you can get away with with being wrong a little bit better.
Bruce Norris  Okay, that’s interesting…
Daren Blomquist  What would be your answer to that?
Bruce Norris  My answer no long term is much easier. Because, just because…
Daren Blomquist  Yeah.
Bruce Norris  There’s repetitive things that happened. But I had the same opinion in January of 2020. I’m looking at the best set of charts. And we should be going up 15%. And we’re going up none. So I think there was one of the articles you refer to Realtor.com or maybe it was CAR talking about, basically, less than 1% price increase in 2020. And I was right on board. How could you, how could you not go down? If these charts go in the wrong direction? They’re so positive, and we’re not going anywhere. So, yeah, that was an, I was actually an accurate prediction. That was wrong. But it was accurate. You know, that. that can happen.
Daren Blomquist  Yeah. Yeah. I mean, there’s, there’s certainly, there’s always unknown wildcards out there, like the, like a pan, global pandemic, they can change things very quickly.
Bruce Norris  Yes. Well, you know, there was a couple of the safeguards that we have in place that weren’t here, during any other time is that, you know, we have, I don’t know, how many interests have seen, I don’t know how loans have rates of two to 3%. But I would imagine a large percentage of whoever owns a home has an or a mortgage, that’s under four, and it’s fixed. And in some ways, have you found that they’re staying there a lot longer, partly because of that?
Daren Blomquist  Yes, in the data, I’ve seen the average homeownership tenure is definitely longer. And I think that has, has something to do with it there. And on that topic, I just bring up, you know, a safeguard that a lot of people talk about, and I agree with generally is people, the homeowners have an unprecedented amount of home equity right now.
Bruce Norris  Right.
Daren Blomquist  That should be a cushion against, against foreclosure, for sure. But one of the puzzling things. I don’t think that’s as maybe as ironclad as as people think, I definitely think it’s a factor that’s helping, and is a safeguard, but we do see in our own data that’s puzzling is that there’s these properties that go to foreclosure auction, and about 20%, well, about 50% of them, and that number has been increasing over over the last 10 years, gradually increasing, but as of this year, about 50% of those foreclosure auctions sell for more than what’s owed on the mortgage. So, in other words, if that’s those are surplus funds, if we build in like a 20% cushion there, because bit, you know, because you may have a second mortgage, or, you know, even if you, if you sell the property to cost of hiring an agent, all that takes out some of that we’re still seeing about 20% of the more, of the properties that sell foreclosure action sell for at least 20%. above what the the total debt is on the mortgage.
Bruce Norris  Yeah.
Daren Blomquist  So, and that’s always been a little bit puzzling. Like why would these folks these homeowners allow the property to, to be foreclosed on when they have equity? So, I think it’s not I don’t have the maybe, maybe you have some thoughts on that, but I’d love to hear them but certainly equity is not always a savior for.
Bruce Norris  No, no it especially you know, the, the makeup of somebody in foreclosure can be I’m going to deal with it tomorrow. And then tomorrow is the day before the auction and it’s too late. So, a lot of times they avoid any, any solution that could have helped them right so any listing agent in 2021 could have listed their home and got them out. You know at a retail price. And they would have had a trustee sale, but a lot of people don’t get out of their own way. That’s just that’s part of the foreclosure business. That’s for sure. Well, so what we talked a little bit about inflation, what do you actually think we’re going to see that due to interest rates? Do you have any take on that?
Daren Blomquist  My take is that, and I don’t claim to study this extremely hardly, you know, extremely deeply. But yeah, my take is, is we are going to see that push up mortgage rates, we’re already seeing evidence of the market, anticipating the Fed raising rates and mortgage rates going up. I don’t know what they’re at exactly today, but or anything. But yeah, that’s the general trend is that’s I would expect to see those those rise. I mean, I feel like we’ve, there’s been a lot of folks who have predicted that mortgage rates have to rise over the last few years. And I know that you were countered contrarian data a couple of years ago when I heard you. I think, mortgage rates.
Bruce Norris  That’s what start with a two. Yeah.
Daren Blomquist  Start with a two. Yeah.
Bruce Norris  And when you when you put that on the front of a cover of a report, you’re stuck with it. Yeah.
Daren Blomquist  Yeah.
Bruce Norris  When someone recently asked me if I thought they go down to one, I said, I’m not going to put that on the front of a report.
Daren Blomquist  How do you, what do you see on that front? I’d love to get your input.
Bruce Norris  You know, we’ve just spent the year talking to people that are brighter than myself on this topic of inflation. And of course, they disagree with each other. So, that was a lot of fun. And some of these people were the brightest of them, and they disagree with each other. There was a, there’s a book that I read that kind of helped me see a bigger picture than just what’s happening right now. First of all, we’re dealing with what, nine months of inflation, the 70s, were 10 years of inflation, at six and a half plus percent. And now we have nine months. So, that’s, and why did that happen? It probably happened because we had trillions of dollars shoved into the marketplace. And there was, to me there were two urgent groups, there were there were people that were urgent to stay home and pull their house off the market. And there were, there was an urgent group that said, I have to leave where I am, whether it’s a rental, and now I have to own or I’m going to go from a location that I don’t have to stay in anymore, and move and all that all that pressure, put all this all these prices up. But that, you could see, case for that was driven by all these trillions of dollars that were shoved in, if you’re a boat dealer, you’re you’re a happy guy. Since about June of 2020. Everybody owns a boat, or a piano, I’ve been told I mean, all those, all those accessories to life that we were putting off, we decided not to put off including the room addition, and the office addition. But this book was written by a billionaire that’s in the tech world. And he’s on the panel or on the board of a lot of companies. And the books name is The Cost of Tomorrow. And it was really interesting because he said Tech’s job is to make things cheaper and more efficient. And there was an article in Riverside, probably two years ago. And it explained that over the next decade, 80% of Riverside’s jobs could be done with robots. And that was a pretty uncomfortable and I’m not saying that’s going to happen. But when you have inflation of wages, you know, when you decide to pay somebody that flips a hamburger 25 bucks, there’s a better chance there’s going to be a robot doing that next year. And so that was his point. So, that’s a good book to read. The other thing is…
Daren Blomquist  The cost of tomorrow?
Bruce Norris  The Cost of Tomorrow. Yeah. There, the other thing is, that’s deflationary, that’s in places demographics. So, the aging of a population. And also debt levels are deflationary. So, we have three really big pieces that are deflationary. And we have inflation. And I think, in my mind, I don’t think it’s going to last more than a year from now. And so, and one of the reasons I think that too the bond market, we’re at six and a half percent inflation. And the 10 year table is 1.75 approximately today. The last time we were at six and a half percent inflation. It was 10. So, the bond markets looking at this going, ‘Yeah, I don’t know about that.’ I don’t know. It’s past my paygrade too just so you know. It’s, it’s, it’s always fun talking to people smarter than you on their, especially on their topic. But what’s really confusing is when they are on the opposite ends of the spectrum. And absolutely sure they’re right. It’s like, oh, boy, that’s fun.
Daren Blomquist  Yeah.
Bruce Norris  Well, you know, I think I think Auction.com is, I mean, obviously, there have been a very successful company shifting gears, because that’s basically what’s been going on ever since they’ve been around. They, they got into business, right when the foreclosures got crazy. And they were, and they first auctioned off a new housing track. And then they went to the REOs, and all of a sudden, they went into all these other things, so that the trustee sales, especially, and they dominated that world. That was amazing to me. So it’ll be interesting to see what next. But if we don’t have a big downturn coming, it may very well be that they build a new clientele of buyers.
Daren Blomquist  Yeah. Yeah, I think I mean, I’m interested to see what the future holds for us as well. But I think certainly there’s, there’s an opportunity there with expanding, expanding our buyer base, and our the types of properties that we auction off we we have started to auction off some limited portfolios of single family rentals. And so that’s, that’s a first step in that direction but.
Bruce Norris   Yeah.
Daren Blomquist  Yeah.
Bruce Norris  Can you okay, what are you in California?
Daren Blomquist  Yes.
Bruce Norris  Okay. Can you imagine if a builder said, ‘Okay, we’re not going to sell’ – in the last year or so ‘we’re not going to sell anything to we’re done’. We’re going to hold an auction with all the houses at one time. The net that he would have made more than he would have made a year before would have been crazy. In my estimation, I’ll give you an example. We had a home, housing tract that we built in a pretty remote location only because the market was nuts and cold was Rosemond. Rosemond’s nine miles from Lancaster. It’s kind of feels like it’s the…
Daren Blomquist  I’ve been through there.
Bruce Norris  Yeah, Rosemond is, after Rosamond, there is nothing. It’s the last bastion of a…
Daren Blomquist  On the way to Mojave.
Bruce Norris  …long, for a long way. When we were building those in ’04 and ’05, we actually had people spending the night to they could get one of the five that were released. And I always thought that my head you know, that was, there was a way to auction that track at one time, it would have been amazing. And so what that would have gone for. You guys were big enough to pull it off. So that would be very interesting.
Daren Blomquist  Yeah, thanks. Thanks for that. If, if you see us doing that anytime soon. That’s my idea, not yours.
Bruce Norris  That’s cool. All right. Darren, I really appreciate get to see you again. And I know we talked plenty of times. And I try we did, we did have those meetings probably once or twice a year where I come in and at least give them my take on what’s going on.
Daren Blomquist  Yeah, back in the, in the real track days. So yeah. Great to see you again, Bruce. And I’ll probably be moving to Florida at some point.
Bruce Norris  Oh, really?
Daren Blomquist  Well. Now I’m just, I was just looking at the latest census data and definitely migration data and Florida’s at the top of the list.
Bruce Norris  Yeah, well, you know, what’s interesting about population gain and see this. So, this is interesting to me. California, 100% of California’s population gain is births over deaths. That’s it. And even that was negative. In other words, last year, you lost people even with the birth, because you have people leaving, but Florida’s population gain is 85% migrating adults. And that is very healthy for a real estate market. Because those people have to live in either house they buy or house they rent. So…
Daren Blomquist  You’re in a good place.
Bruce Norris  Yep. All right. Darren, thanks so much for joining us today. I appreciate it.
Daren Blomquist Thank you, Bruce.
Bruce Norris  All right. All right.
Joey Romero  Thank you.
Daren Blomquist  Thanks. Thanks, Joey.
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.