The nation’s distressed property market saw notable movement in Q3 2025, with foreclosure and REO auction activity hitting multi-quarter highs even as buyer engagement showed signs of cooling, according to the latest Auction Market Dispatch report from Auction.com.
Foreclosure auction volume rose 31% year-over-year and 4% from the previous quarter, reaching the highest level in more than two years. REO auction volume also climbed, up 15% annually and 1% quarter-to-quarter, marking continued growth in distressed-property supply.
Investor Engagement Weakens
Despite the increase in available inventory, investor participation slowed. The foreclosure auction sales rate fell 12% year-over-year and 2% quarter-over-quarter, the lowest level in nearly three years.
Average buyer bids at foreclosure auctions dropped to 55.7% of after-repair value (ARV), down slightly from 56.5% in Q2. On the REO side, bids averaged 53.6% of ARV, the lowest in 29 quarters.
Auction.com survey data indicate that some investors are tempering offers or pausing activity amid expectations of softening property values and higher renovation costs.
Foreclosure Activity Rising Across Loan Types
Foreclosure volume increased across loan categories, with VA-insured loans seeing a 500% year-over-year surge. Texas posted a 66% annual increase in foreclosure auctions, among the sharpest state-level gains.
Vacant properties now make up 54% of all REO auction volume, the highest share since late 2021—a sign that more inventory is remaining on the market longer.
Pricing Adjustments Take Hold
Seller pricing trends also moved lower. The credit bid-to-ARV ratio—which reflects the minimum price set by lenders—declined by more than 100 basis points from the prior quarter for foreclosure auctions, and roughly 225 basis points year-over-year for REO auctions.
These adjustments point to sellers aligning expectations with moderating investor demand and competitive pressures in the auction marketplace.
Economic Backdrop Adds Pressure
Auction.com analysts linked the shifting auction dynamics to broader macroeconomic conditions, including a 4.3% unemployment rate in August, a manufacturing index below 50, and a 57% probability of recession.
Existing-home sales remained muted at an annualized rate of 4 million units in August, while the median sale price stood at $422,600. Thirty-year fixed mortgage rates averaged 6.35% in September, keeping financing costs elevated for both buyers and investors.
Bottom Line
The Q3 2025 data highlights a market in transition: more distressed inventory entering the pipeline, but with weaker investor participation and tightening pricing margins. As foreclosure activity continues to climb and bidding activity eases, the report suggests the distressed housing sector may be entering a new phase—defined by greater supply, lower competition, and more selective buying strategies.
Read the full Auction Market Dispatch report here.
The post Distressed Property Volume Climbs as Investor Demand Softens first appeared on The MortgagePoint.
