As analysts and real estate insiders widely expect a housing market pullback in the coming months, there is a possibility this will correlate with a return of something many remember as the ugliest signs of the 2008 crash—namely, zombies.
These so-called “zombie foreclosures,” which are homes that are being foreclosed and are also vacated or abandoned, ticked up quarter-to-quarter for the first time since the federal eviction moratorium lifted in the fall of last year, according to the latest report from ATTOM Data Solutions.
Even as some might be alarmed even at this relatively minor increase of 1.9%, ATTOM Executive Vice President Rick Sharga said in a statement the zombie incursion remains more of a “Little Monsters” level threat, rather than a looming “World War Z.”
“According to our equity report, almost 90% of homeowners in foreclosure have positive equity. Having equity gives financially-distressed homeowners an opportunity for a relatively soft landing—selling their home at a profit rather than losing everything to a foreclosure,” he said. “That factor alone should keep the number of zombie-foreclosures from rising too much.”
Still making up an almost insignificant proportion of properties nationwide—7,569 out of almost 100 million residential properties nationwide. Zombie pre-foreclosures have also continued to decline, down 2.9% from last quarter, meaning that more recent foreclosure filings seemingly aren’t pushing homeowners to abandon their properties.
Sharga said he attributes the increase to factors preceding the pandemic, and only just now showing up in data.
“The incidence of zombie-foreclosures tends to be higher in cases where the foreclosure process has dragged on for many months and sometimes even for years,” he said. “We’re now seeing properties where the borrower was already in default prior to the government’s moratorium re-enter the foreclosure process, and undoubtedly some of these homes will have been vacated over the past 26 months.”
While an increase of zombies is never a good thing, possibly more alarming is the significant jump in foreclosures broadly—up 12.7% from Q1 of this year. A total of 259,166 homes are in foreclosure.
That is a significant increase, the largest since the moratorium was lifted, with ATTOM’s data revealing low-single digit increases quarter-to-quarter as mortgage lenders seemingly were willing to work with distressed homeowners rather than beginning the foreclosure process. Other pandemic era protections and aid also figured in, with no huge spike in foreclosures at the end of the moratorium.
Pre-foreclosures have also climbed at a steady pace, up for the third straight quarter, though zombie pre-foreclosures are down 2.9% this quarter.
The report said these trends can be included in “a list of measures” indicating a possible slowdown this year, even as the market currently appears strong.
The largest state-wide increases in zombie properties occurred in Michigan (a 74% increase in zombies), Arizona (up 56%), Georgia (up 29%), Nevada (up 26%) and Iowa (up 17%). The proportion of investor-owned zombies actually fell fractionally, from 3.4% to 3.2%.
Qualifying metros with the highest rate of zombified foreclosure properties were Peoria, Illinois (11.3% of properties in the foreclosure process are vacant); Wichita, Kansa (11.2%); Cleveland, Ohio (9.5%); Syracuse, New York (8.9%) and South Bend, Indiana (8.6%).
Overall vacancy rates across the country fell slightly, at 1.30 million, down from 1.35 million last quarter
Of all qualifying counties—those with at least 500 properties in the foreclosure process—only one boasted zero zombie properties in Q2 of 2022. That safe zone was Contra Costa County outside of Oakland, California.