Zombie homes increase for a second quarter as foreclosures rise

The number of zombie properties — homes abandoned by their owners while in pre-foreclosure status — is inching higher, with the total likely to increase, even as overall vacancies should drop.

A total of 7,707 residential properties facing foreclosure are sitting vacant in the third quarter, increasing by 1.8% from 7,569 three months earlier and 2.2% from 7,538 year over year, according to a report from real estate data provider Attom. It is the second consecutive quarterly increase in zombie numbers. 

The trend runs counter to vacancy rates relative to all U.S. properties, which fell to just under 1.3 million, equaling 1.28%, or one in 78 homes. The total is down from 1.31% during the second quarter and 1.35% a year ago.

"We see two trends heading in opposite directions — the number of vacant properties continues to decline and the number of zombie properties continues to increase, although neither trend appears to be particularly worrisome," said Rick Sharga, executive vice president of market intelligence at Attom, in a press release.

The current total of zombie properties represents one in every 12,947 homes, up from one in 13,424 three months ago. However, as the number of homeowners entering the foreclosure process also increased by a larger margin, zombies made up a smaller portion — 2.8% — of pre-foreclosure volume compared to earlier reporting periods. In the second quarter, they accounted for 2.9% and one year ago, represented a 3.5% share.

"The number of zombie properties should continue to increase slowly as foreclosure activity climbs back from historically low levels due to government intervention," Sharga said.

Homes in the foreclosure process grew by 4.4% over the past three months to 270,470. That's an increase of 25.5% from the same quarter last year, when the pandemic-related moratorium on servicers taking action against delinquent homeowners had just been lifted.

The number of zombie properties, while representing just a sliver of the U.S. market, increased the most in Oklahoma, which saw its count rise 22% from 97 to 118 between second and third quarters. The Sooner State was followed by Missouri, with a 16% increase from 55 to 64 and California, where zombie homes climbed 15% from 221 to 254.

The zombie-foreclosure rate in large metropolitan cities of 500,000 residents or more was highest in Cleveland at 8.9%, followed by Baltimore at 7.4% and St. Louis and Pittsburgh, both at 5.6%.

As foreclosure numbers inch up to more normal levels, the housing market at large is also trying to achieve greater balance after setting records for volumes and price growth last year. Scarce housing supply amid decreased affordability, though, will likely keep vacancy numbers from growing.  

"Vacancy rates should continue to be low, as investor and prospective home buyers compete for limited inventory," Sharga said.

Among the close to 28 million investor-owned properties in the U.S. currently, approximately 888,000, or 3.2%, are currently vacant. And of the 4,200 bank-owned foreclosed units reported by Attom, 8.2% are vacant, according to Attom.