US: Surge in Zombie Properties Evident as Foreclosure Activity Escalates in 2023

According to ATTOM's recently released third-quarter 2023 Vacant Property and Zombie Foreclosure Report, the United States is facing a rising number of vacant residential properties, commonly referred to as "zombie properties." The report reveals that 1.3 million (1,277,612) homes across the nation, accounting for 1.3 percent or one in 79 homes, are currently vacant. This figure remains consistent with the second quarter of this year. 

The report also highlights a concerning trend in foreclosure activity, indicating that 315,425 residential properties are in the process of foreclosure in the third quarter of this year. This represents a 1.3 percent increase from the second quarter of 2023 and a significant 16.6 percent increase from the third quarter of 2022. The lifting of the nationwide moratorium on pursuing delinquent homeowners in the middle of 2021 has led to a growing number of homeowners facing possible foreclosure, resulting in the surge of foreclosure activity.

Among these pre-foreclosure properties, approximately 8,800 are categorized as zombie foreclosures, referring to properties abandoned by their owners before entering the foreclosure process. This number reflects a slight increase of 0.3 percent from the previous quarter and a notable 13.9 percent increase from the same period last year. While this marks the sixth consecutive quarterly gain, the proportion of zombie foreclosures remains relatively small compared to the total stock of 101.6 million residential properties in the nation.

The United States' housing market boom, which has more than doubled the national median home value since 2012, has notably contributed to the limited presence of zombie foreclosures in most areas. The escalating home prices have continued to drive home equity and selling profits, offering delinquent homeowners greater incentives to avoid foreclosure and explore alternative options to address their financial challenges.

Despite the upward tick in zombie foreclosures, evidencing an upward trend in recent quarters, the associated problems remain relatively minimal. The third quarter of 2023 witnessed 8,782 residential properties vacated by their owners, a slight increase compared to the previous quarter's figure of 8,752 and a significant rise from 7,707 in the third quarter of 2022. While 19 states experienced quarterly growth in the number of zombie properties, 28 states reported an annual increase. The states with at least 50 zombie properties experiencing the highest growth rates from the second quarter of 2023 to the third quarter of 2023 include Missouri (51 percent increase, from 35 to 53), Maryland (22 percent increase, from 188 to 229), Oklahoma (15 percent increase, from 173 to 199), Connecticut (13 percent increase, from 77 to 87), and Pennsylvania (11 percent increase, from 401 to 446). Conversely, Texas, Michigan, Georgia, Kentucky, and Nevada experienced decreases in zombie foreclosures during the same period.

Looking at overall vacancy rates, the third quarter of 2023 saw a relatively stable situation, with the vacancy rate for all residential properties in the U.S. remaining unchanged. The current rate stands at 1.26 percent, representing one in 79 properties, similar to the rates of the second quarter of 2023 (1.27 percent) and the third quarter of the previous year (1.28 percent). States with the highest vacancy rates for all residential properties include Oklahoma (2.26 percent), Kansas (2.13 percent), Alabama (2.03 percent), Indiana (2.02 percent), and West Virginia (2 percent). Conversely, New Jersey, New Hampshire, Vermont, Idaho, and North Dakota reported the smallest overall vacancy rates.

In examining further details from the third quarter of 2023, we find that several metropolitan statistical areas (MSAs) in the United States experienced relatively high rates of properties facing possible foreclosure and zombie foreclosures. Among the MSAs with at least 100,000 residential properties, the cities with the highest zombie foreclosure rates in the foreclosure process are Cedar Rapids, IA (12.5 percent), Peoria, IL (10.8 percent), Indianapolis, IN (8.9 percent), Fort Wayne, IN (8.8 percent), and Youngstown, OH (8.3 percent).