Interest in foreclosures is heating up in 2017 even as the foreclosure market dries up.

“The REOs that come on, they are not that far off from the traditional stuff. Back in 2007 you were getting 20 percent off the actual value. … Now you have them selling for 5 percent off, if that,” said Leland DiMeco, owner and principal broker at Boston Green Realty.

Meanwhile DiMeco said he has noticed an uptick in interest in foreclosures from investor clients.

“Last year we just had low inventory. It became very competitive. Whatever it was listed for, it sold 1 or 2 percent over that,” he said. “Investors might have gotten fed up with that and were looking at the REO market, which is why they were reaching out to me.”

Small Lot Subdivision

DiMeco said investors and other buyers are also becoming more interested in “off-market” properties that aren’t listed for sale on the local Multiple Listing Service but may be available to purchase at the right price.

Across the country in Los Angeles, where the distressed market has also dried up and there is not much space to build large new developments, investors are turning to small-lot subdivision to add value and create inventory.

“In my opinion small-lot subdivisions is the No. 1  for- sale trend,” said Jonathon Dilworth, founding principal of c&d partners, which is converting two single-story single family homes into four single family homes at the corner of North Mansfield Avenue and Fountain Avenue in Los Angeles. Dilworth said a 2005 ordinance by the city of Los Angeles opened up the possibility of building single family homes with zero lot lines. “Without that you’d be classified as townhome or condo, which is not valued as high.”

A total of 3,020 construction loans were originated in the Los Angeles metro area in 2016, up 5 percent from the previous year to the highest level since 2007 — a nine-year high — according to ATTOM Data Solutions. Those 3,020 loans represented nearly $9.0 billion in dollar volume, up 73 percent from 2015. Dollar volume of construction loans secured by existing single family homes increased 20 percent while dollar volume of construction loans secured by residential vacant land increased 29 percent.

Small-lot subdivision is a hot trend in several urban markets across the country, according to Chris Richter, co-founder of Audantic, a real estate analytics company that provides market research and leads for real estate investors.

“They’re scraping full blocks in very expensive areas and putting in apartment buildings. And they’re getting what they ask for,” he said.

Flippers Profit in Fight Against Blight

The drying up of the distress market is even showing up in hard-hit states like Ohio, where the he fight against blight is gaining traction thanks to a combination of state legislation, federal regulation along with home flippers taking advantage of a recovering housing market, according to Matthew Watercutter, broker of record and senior regional vice president at HER Realtors, covering the Columbus, Cincinnati and Dayton markets in Ohio.

Ohio homes flipped in 2016 represented 5.6 percent of all single family home and condo sales during the year, up 11 percent from the previous year, according to the ATTOM Data Solutions 2016 U.S. Home Flipping Report, which also shows Ohio home flips yielded the second highest average gross flipping profits in the year.

Builders Are Coming Back

According to Watercutter, home flippers are simply taking advantage of creating like-new inventory of homes that are move-in and rent-ready in a market without many new homes being built.

“New home construction almost completely stopped several years ago and it just recently started. There is a lack of new move-up inventory to buy,” he said.

ATTOM Data Solutions shows 3,749 construction loans were originated in Ohio in 2016, up 10 percent from 2015 to the highest level since 2008. Total dollar volume of those construction loans was more than $1.2 billion, up 15 percent from less than $1.1 billion in 2015. The number of construction loans secured by vacant land in Ohio increased 80 percent, while the dollar volume of those loans increased 121 percent from 2015 to 2016.

Builders and developers acquired more vacant land in Ohio for residential development in 2016. Sales of residential vacant land in the state increased 9 percent in 2016 compared to 2015, compared to an increase of 2 percent in single family home sales over the same time period, according to ATTOM data.

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