And by the time we get to Q4, you are going to have a really sizable
0:06
foreclosure population. At the same time, that distress, there's no buyer to
0:12
come and buy these homes where those margin sellers need to get out of the market as quickly as possible. And those
0:18
two things coming together, including increases in gas prices and also electricity. And that's going to happen
0:24
all over the country. like these things are these forces are just going to push
0:30
um that that distressed seller kind of uh to the breaking point and that dam uh
0:35
is going to break really in Q4 in my opinion.
0:46
Welcome to thoughtful money. I'm thoughtful money founder and your host Adam Tagert welcome you here for a
0:51
discussion with the delightful Melody Wright, housing analyst extraordinaire. Melody, how you doing?
0:56
I'm doing well, Adam. How are you doing? I'm doing very well. Great to see you. Melody, last time you were on the
1:02
program was for Thoughtful Money's uh spring online conference, um which was in March, which was, you know, two
1:09
months ago, which not all that much time, but kind of in housing years. Kind of feels like dog years, I'm I'm sure.
1:16
Um, I got a lot of questions for you and in particular I want to zero in on the potential risk of uh coming foreclosures
1:23
in this discussion, but let me just step back and at a higher level ask you um what's changed since March. I mean in
1:30
March you you weren't super optimistic about the housing mark market's prospects. You've been coming on this
1:36
program for many years and you've been very consistent, especially over the past two years, that you really think
1:42
that we are slouching into a national housing correction, which you have said
1:48
could be worse in terms of a full decline of prices than the GFC. Um, have
1:54
things gotten better, stayed the same, or gotten even worse since we last talked in March? I think we, you know,
2:00
it it's kind of we I think when things start to really turn, Adam, and I think what you and I have witnessed over the
2:06
last really three years, coming up on three years, is just the layers of this correction,
2:12
right? The how this how the dominoes start to slowly fall and then when you get to a real like a big huge transition
2:20
moment, the messages are very mixed. And so I was not at all optimistic um about
2:27
sales uh because I mean you just weren't seeing it. Um and and I think you know
2:32
we only had February results when I talked to you which was prior to the war uh you know so um I was really curious
2:40
to see what would happen. Well what happened is uh sales really slowed in
Slowing Sales During Peak Season & Seasonal Price Firming
2:45
March which you know this is uh this is not when sales should be slowing. This is when the gas somebody should be
2:51
putting their foot on the gas. And then you know what was interesting to me uh
2:57
is in the price information that I was looking at including the National Association of Realtors and then Red Fin (RDFN)
3:04
you saw what I called the seasonal firming like you know it doesn't matter if you were in 2007 2008 2009 typically
3:12
prices are going to firm during the selling season because that's because the people who are transacting are the
3:19
ones that can. Now, when we get to the second part of our conversation later or
3:25
I don't know how much later, little it'll depend, but when foreclosures and this is something you've been talking
3:30
about forever, we just have not seen foreclosure. So, that other marginal sale, you know, what
3:36
we've been seeing is the only people that can transact are those that really can afford it um are getting help from
3:43
their parents are those propped up by our government subprime. Um, but what
3:48
you weren't saying was a ton of distress sales because of um basically all these
3:54
loss mitigation programs, but we're getting to the point now, which, you know, I I thought we'd see it a little
4:00
bit earlier, uh, like, you know, and we did see some of it last year, but we're getting to the tilting point where the
4:06
distress sales are going to start to outnumber those other sales. And that's
4:12
that's when you're going to see some real activity in pricing. But then what was fascinating though is we just got
4:18
the Freddy Mack (FMCC) home price index and this if anything is likely to lead K
Freddie Mac Home Price Index Warning: Weakest Gain Since 2011
4:23
Schiller um and and you know if I'm talking a ton of jargon just stop me Adam but K Schiller is so delayed that
4:31
you know you just really can't use it to um figure out what's happening but if
4:37
any series is going to lead K Schiller it's the Freddy Mack home price index because they use basically the
4:43
appraisals from the closed sales that Fanny (FNMA) and Freddy purchased. And we just saw something we haven't seen since 2011
4:50
between February and March. And so they've been tracking this since 1975, Adam. So in the past 51 years, there's
4:59
only been seven times or seven years where you had u this low, if you're
5:05
looking at the nonseasonly adjusted, this low of an increase from February to March because again, this is the season.
5:11
This is when it should be taking off. Um, and then nonseasonally adjusted, it
5:16
has not been negative since 2011. Okay. So, we just entered Adam and it's it's
5:23
kind of terrifying to say it because, you know, we just had a lot of false starts here, but this this is a very
5:29
unique indicator and it feels as if in the season to see that kind of weakness
5:36
that what I saw in January where over half the cities I track had year-over-year price declines compared
5:42
to like 17 or something like that the year before. Like, this is real. like this we are starting to actual actually
5:48
actually see on an aggregate basis not just in pockets across the country but on an aggregate basis price weakness.
Aggregate Price Weakness Now Visible Across the Country
5:57
Okay. Um lots to dig into here. Um and I do want to get into um
6:04
uh the ending of of some of these um subsidized
6:10
uh programs that that you've been talking about. Um okay. So let me ask you this. So, so, okay, you're you're
6:17
seeing price declines now in I think you said over half the markets now. Um,
6:23
we're seeing some scary things like um the the negative in the what were they?
6:29
The it's the Freddy Mome price index. Freddy Mome price index. Okay. Um which we haven't seen since 2011. So,
6:35
we're definitely seeing price weakness. Now, one of the things that we've talked about forever is that a leading
6:41
indicator of price weakness um is going to be inventory rising, right? And we we
Rising Inventory: From Sun Belt to Midwest & Northeast
6:46
we had very low transaction inventory for the past several years. It's this
6:52
frozen housing market that we've talked about. You said really the only people who were transacting were those who had money or had some sort of help um
6:59
whether from parents or from the government. Um, so that was keeping, you know, some transactions going, but
7:05
transactions were far lower than they they'd been on average years. Um, and inventory had been tight. Inventory now
7:11
has been increasing, and we've seen that happen in the markets that have really had the biggest price declines, right?
7:16
The the Florida, the Texases, etc. now starting in California or it's already
7:22
started in California. What's happening with that inventory? Is that is that rise in inventory kind of infecting
7:28
other states at this point in time or is something else happening? Yeah. So I think this is I'm watching other housing analysts out there kind of
7:34
get confused in my opinion about the the signals and and so what you're seeing let's take Florida who you could not you
7:41
almost couldn't believe the inventory increases and 24 and 25 dur I mean it
7:47
was just like whoa you were and and so I think people are looking at Florida and seeing um in some places a little bit of
7:54
inventory decline but again you're coming from those massive highs of inventory um are that slowing um because
8:01
really everybody should have sold last in 24 honestly, but it's just been that
8:08
frozen. And again, you're you're dealing with at this point the majority of those that are selling those homes. And again,
8:14
you know, Red Fins come out every month for the last several months saying that there's, you know, the historic levels
8:19
of more sellers than buyers and they started tracking since 2012. Um, but
8:25
they're just not there's no there's nothing really pushing them into the market. And every time they crack open
8:31
mainstream media, it tells them that there's an inventory shortage. So Florida, I don't think we're going to
8:37
get the next wave of inventory down there until there is some sort of
8:42
catalyst event. And that could just be because they start to see the sales in their neighborhood. Um, but across the
8:49
country, it is growing uh very quickly in places where it had had not been growing before like the Northeast and
8:55
the Midwest. But go ahead. Looks like you have a question. No, no, no. That that's exactly what I was going to say. So in Florida, Austin, and those markets, the dam, at least the
Why Florida & Texas Inventory Is Still Digesting the Boom
9:01
initial dams burst that were inventory-wise where you saw a big flood of inventory onto the markets, maybe on
9:07
a relative basis, 26 to 25 doesn't look like a huge increase just because the increase was so large in 24 and 25,
9:14
right in those initial markets, but you're saying we're now starting to see those initial dams burst in more and
9:20
more states and regions because, you know, two years ago, a lot of people in some of the areas you mentioned, the
9:26
Midwest, New England, they're like, it's not going to happen here cuz you know we don't have the room to build or
9:31
whatever. Um you're saying no it's starting to happen that that's exactly right and and and so
9:38
you know and in places so just before we move on to in the sunb belt people have to look they cannot look on realtor.com
9:45
they cannot look on Zillow (Z) they have to look at Zillow and New Home Source to really understand the inventory there.
9:51
So, I think that's why a lot of the analysts that you're seeing come out right now um talking about this what is
9:58
confusing them in Florida. They're not looking at the whole picture. But yes, to your point, what you're seeing in the
10:03
Midwest, we had so much speculation in the Midwest in 24 and and even in 25 and
10:09
a lot of it, Adam, was around the data centers and like Ohio. And I actually stayed overnight and knew Albany, Ohio,
10:16
which is uh in the area where they were going to have that big uh I believe it was Intel (INTC) plant, but also they've had uh
10:23
a lot of data center buildings and you can building and you can just see all around this city all those boom town
10:30
characteristics. Um, and so investors led that charge, went in, bought up all
Data Center Speculation Bust in the Midwest
10:36
the existing homes in places like Kansas City, Indianapolis, Columbus, Cleveland,
10:41
because they were the remaining uh affordable homes. But now in those all those same areas, you are starting to
10:48
see inventory just fly to market. And you're seeing somewhere like Indianapolis just come under uh great
10:54
stress both on the foreclosure side and on the listings for sale side. So the
11:00
nor the Midwest has woken up is what I would say uh Adam and and it's woken up
11:05
in a big way and we're going to we're going to see that more. The Northeast there are pockets that are waking up.
11:11
Boston, Philly, Pittsburgh. These pockets Boston is just getting hammered, which you know that's your old
11:18
hometown. Um and and it's just it's just getting hammered, Adam, because these
11:23
two years of u doubledigit property tax increases, kind of what went on with
11:29
universities, you know, at the beginning of the Trump administration, but you know, Realtor.com put out an article
11:36
over the weekend saying something like 26% of younger Americans in Boston are
Northeast Struggles: Property Taxes, Demographics & Out-Migration
11:41
thinking of leaving because they just simply can't afford it. And so, um, the biggest thing that folks are missing in
11:48
the Northeast and in the Midwest, and actually they're still missing it in the South, uh, as well in the West is our
11:54
demographic picture. And what people have to understand is that a lot of these homes are are actually getting
12:01
resolved through auctions. And this is something I told uh your conference goers uh in our in that conference is
12:08
that start looking at your auction sites. And and Adam, as I had been to an
12:13
auction around here, I had seen what happened. There were no investors. An actually owner occupant won the auction.
12:21
And then just this week, I'm driving down the my road and I see uh you know, overnight a sign go up saying an auction
12:28
for two houses in a lot just right off the road. And so what happens when these
12:33
properties go into probate depending on the county and the process, it can mean
12:39
a delay of 6 months, 12 months. The auction that I went to where that uh
12:46
that potential owner occupant was going to be that home had been in probate for
12:51
three years. And so this this all takes time to hit the markets. Um, but this is
12:58
the reason why I've been talking about so much vacancy across the country. And so the Northeast is going to be
13:04
especially hit by all this because very low owner occupancy in all of those
13:09
cities and who owns those properties. Um, and they will be exiting for more than the reason of just, you know,
13:16
unfortunately aging out. They're just they're not they're not making money anymore and it's too risky out there
13:22
with increases in property taxes and insurance. Okay, great. is get into what I want to talk about next real quick. Um because
13:30
I've interviewed you a lot. Um is it propertyraar.com that's helpful for looking at auctions?
Tracking Auctions & Probate Properties (PropertyRadar & Foreclosure.com)
13:37
Yes. Good job. And foreclosure.com. These are two foreclosure.com really
13:42
looks at the foreclosures. Um uh auh propertyraar.com. You can see those
13:47
pre-probate notices. You can see those tax lanes, uh owner lanes, things like
13:53
that. Okay, great. Um, all right. And, uh, okay. So, a lot of things going on
13:59
there. Um, first in the Northeast, it
14:04
sounds like, I mean, multiffactorial, but it sounds like a big issue there is, uh, younger people are just getting
14:11
priced out just like they have in other markets. Like, you know, I just recently moved from living in the San Francisco Bay area. You know, same thing was going
14:17
on there. Um, and I think that's something that maybe people there just really weren't realizing, which is, hey,
14:24
you know, we're fine because they're not building as many houses here as they are in the Sunb Belt and other places. We
14:30
didn't have this the speculation. Um, but um, prices just kept inexurably
14:36
rising. Both both home prices and the cost of home ownership. And at some
14:41
point, you just price out the cohort that would be expected to buy these homes from the boomer crowd, right? And
14:48
so what's happening is they're realizing like, all right, well, now it's time for me to sell. Gez, where are the buyers? And now
14:56
saying, I can't and you know, in many ways, and I'm not even sticking around to maybe be able to afford here. I'm
15:01
going to some other more affordable part of the country. All right, so that's hitting the Northeast. What's interesting about the
15:07
Midwest is it sort of sounds like they're having their CO equivalent. So
15:12
during COVID, we had the whole work from home phenomenon. And all of a sudden in the Sunb Belt states, you know, they
15:18
were just booming because people were like, "Oh, everybody's ditching New York, Chicago, whatever. They're coming
15:24
down here where it's fun and they can work remotely." And man, there's so much demand. The restaurants are open forever.
15:30
Yeah. And the restaurants are open. Exactly. In Florida. Um, and it was a boom time until
15:37
CO was over, had to go back to the office, all that type of stuff. And then now, and and there was so much rampant
15:43
building speculation down there. That's why some of these areas, the Austin's, the the South Florida's broke first. But
15:50
it sounds like the Midwest has had their own version of that in the past two plus years with the data center gold rush.
15:57
So, companies are announcing or starting to build break grounded data centers there. So, all the investors, as you
16:03
said, went in, bought everything up, and now they're realizing, oh, hey, wait a minute. You know, we we kind of
16:08
overbought here. Speculation drove prices too high, and now all of a sudden, we just don't have buyers for
16:13
the inventory that we're trying to get rid of. That's right. And that's right. And it's like a lot of these big tech projects.
16:19
So, when I was at the hotel in New Albany, you know, I asked the manager like this is because I I stayed in five
16:25
different hotels and five over five nights at them. So saw a lot of different things, but this was the only
16:31
hotel where there was a sign of life, like where it was actually hopping. And I and I asked and they said, "Oh, this
16:37
guy over here was a big developer from Texas." Um, he's been coming here for 3 years. And so this thing was kicking up
16:43
and it kind of kicked up quietly. You know, you could see it. But yes, now we've hit that COVID moment where
16:49
they're like, I mean, these data centers bring like 10 employees once they're done. I mean, when you're doing the
16:54
construction, it brings a ton of activity. you know, everybody that's building it, um, the people that are
17:01
servicing it, laying the electricity, all this stuff. But when all those people go away, the
17:06
hotels get empty. This is what I saw in Round Rock, you know, when I went three years ago in Round Rock, Texas. Um, and
17:13
and so you're ending I think Apollo (APO) put out a graph that actually data center
17:19
construction peaked in 2023. I think that's fascinating. Now, we'll see if that's actually
17:25
true, but it it feels true based what I've seen on the road. Um, but yeah, all of a sudden, there's going to be a
17:31
slowdown in these areas. And it was so funny. I I saw somebody post about uh pushing
17:37
back on these in that area around that new Albany area. I was like, "Oh, yeah. I was just there." And and people just
17:45
told me about all these new builds that I didn't even see because I kind of came in at night. I, you know, I wasn't there
17:51
to do a site visit. it just happened that way. Um I had written about that new Albany before. Um but yeah, so
17:58
they've built it up completely and now you know there's just no buyers yet again and and then so it's we're going
18:05
to see that correction and it could actually happen a little bit faster in the Midwest because I think their
18:11
realization will come faster. Um just because you've kind of had the West and you've had the South sort of
18:17
come before them. Um, so and then now it's just the Northeast, right, which is only about 13% of the overall housing
18:24
market to really uh wake up and and they're waking up and big cities in the Northeast. So, all right. Well, so
18:32
what's interesting about this is there are lots of reasons for regions to end
18:38
up at the same destination, right? Which is higher inventory, lower prices,
18:43
right? And of course folks, you know, real estate is local, so your mileage is going to vary no matter where you are
18:49
based on regional idiosyncrasies. But just sort of nationally, the trend
18:54
continues to be down here. And you're nodding as I'm saying this, Melody. Um, let me ask you this. Have any can you
Have Any Major Markets Bottomed Yet?
19:00
point to any markets yet and say, "Okay, well, that market bottomed out and it now seems to be turning around." Um, or
19:08
is everything still on the decline? Like let's talk about the ones that really got hit the worst, the Austin's of the
19:14
world, you know, maybe the um you pick your South Florida place or whatever. Um
19:20
I know the rate of decline in places like Austin, at least last time I checked, was was really starting to
19:27
moderate, but it wasn't like it had hit a bottom and was was bouncing off of it yet. Um but but am I wrong? Are there
19:33
any places we can point to to say the story is getting better yet, or is it still a tale of falling everywhere?
19:39
Well, the Wall Street Journal certainly pointed to what they wanted to see as a
19:44
bottoming in Austin, especially for rent decline. Uh, but that's just simply
19:49
untrue. Like, you're going to have the same, it's a p seasonal push and pull. Like, everybody moves at the same time
19:56
every year. You know, it's around that June time and they're changing apartments because they're getting out of school, all that. So, I think that
20:03
you're seeing a s again a little bit of seasonal firming in Austin, but no, they have not gone through that inventory.
20:09
They have not even finished building all the multif family. Um, and so many people have just pulled everything off
20:16
the market there, Adam, because it's just there's no they can't sell. And so, I don't think we've hit the bottom. I
20:22
think a lot of people are saying we've hit the bottom in San Francisco. Um I think if we have any sort of correction
20:28
and uh any of these stocks like Nvidia (NVDA) like the B we haven't even begun there.
20:34
So I think we're again at this sort of turning point. Um but no I don't think
20:39
Austin is dawn. I really don't. Okay. All right. So I mean at some point in this national trend downtrend there
20:47
will be a bottom and we'll start to be able to point to markets that are recovering and we'll start to see more and more recover over time. Doesn't
20:53
sound like we're at that stage or maybe even really close to it at this point. Again, you still think nationally prices
20:59
could go down somewhere in the 35% range. And nationally, we're still what
21:05
I mean, are we even down more than a%? We're not even negative yet. We're, you know, Yeah, we're, you know, the median
21:12
list price, which is an a leading indicator, uh, Realtor did their story
21:17
finally talking about this, um, is down year-over-year, 2.2%. And so that's the
21:23
list price, that's not the sale price. Um, but that's an indicator of where
21:28
things are headed. Um, and so, you know, at first I thought we might do the same thing we did last year, Adam, which is
21:35
freeze to the point that we just would get no downward movement on that
21:41
national number. Um, but when I saw that Freddy Mack home price index, um, I I I
21:47
think it was yesterday or two days ago, I was like, "Oh, no." like this this actually could we could for the first
21:54
time in many many many years not peak out completely in June. Um which is you
22:00
know Yeah. So it it it's just there's so many factors uh you know in this massive
22:07
market and and local is really really important but to your point there's a lot of things nationally that are the
22:14
same and and it might it like you say it just kind of varies by degrees. All right. Well, let's let's go through
22:19
this because I want to talk about um
22:25
is is there a risk of foreclosures really starting to come much more into the picture than they have in the past?
The Coming Foreclosure Wave & End of Government Support
22:31
And um you've written a couple pieces about this recently. I want to get in just a moment to um the sunsetting of
22:39
some some of the government support there. Um in particular, the F FHA partial claim loans. Mhm.
22:46
Um but let's just talk at at a high level. So there there's there's the um hangover hangover effect
22:53
of some of the things we talked about, right? the overdevelopment in the south, uh the data centers in the Midwest, the
23:01
demographic issues in the Northeast, but whatever the idiosyncrasy of your local
23:07
area is nationally, everybody's generally experiencing the same things, which is that um you know, prices have
23:14
been going up in most markets, but that cost of ownership continues to go up.
23:19
So, you know, 2 years ago was everybody seeing huge jumps in their insurance. Uh
23:25
I don't know if that's still um happening, but I certainly haven't heard anybody say, "Oh, my insurance has gone
23:30
down." Um property taxes have gone up. Local taxes are going up, especially if
23:37
you live in some of these, you know, um metropolitan areas like New York, right?
23:42
Or or Washington. Um and uh mortgage rates continue to, you know, everybody
23:50
was thinking they were going to come down over time. They have not just been stalled, they're they're grinding higher in the week that we're talking here. Uh
23:57
Melody, uh you know, the the Treasury yields are moving back up and that means
24:02
mortgage rates are moving back up, too. So, just as all of that happens, it just puts more and more gravity on home
24:10
prices. So um given enough time of those factors, does
24:16
that start just increasing the percentage of distressed home sellers and as a result we'll start seeing some
24:23
material coming foreclosure wave and if so when do you expect to see it? Is that going to be a near-term phenomena sorry
24:30
phenomenon midterm phenomenon or something we don't need to worry about for a couple years? Yeah. So it, you
Rising Insurance, Property Taxes & Cost of Ownership Pressures
24:35
know, the insurance increases haven't stopped and and I did a study historically like looking at home prices
24:43
and insurance prices and they always lag by several years like like the home
24:48
price if you go look at the last cycle they kind of home prices got off to this roaring start, right? But insurance was
24:55
kind of behind it and then it it started passing, you know, the home price index
25:00
and home prices start coming down. your insurance just keeps going up for a couple more years and then things start
25:06
to kind of rinse back out and then property taxes like people have gone these m these municipalities are in so
25:13
much trouble Adam they they have budget shortfalls they are looking to these property taxes to save them um and and
25:21
of course people can't afford that so the unaffordability crisis is just uh
25:26
ballooning it's you know it's been impacting our FHA borrowers those at the lower end of the cave K for a long time.
25:33
But you're now moving up the K ladder. You're also moving down the K ladder with uh you know uh uh these super prime
25:41
who are can't get their money out of these gated funds uh losing money on
25:46
these multif family deals they all went on and things like that. But what I'm seeing and what I've seen over the last
25:52
two months, Adam, and it was very shocking to me because I' I talked to your conference goers as well about this
25:58
is the season when delinquent should just moderate. It should look way better because you're getting your tax refund,
26:05
right? And you're getting your bonus payout. And this is historical going back, you know, dozens of years. Like this is how
26:11
it all works. Well, what I saw in both February and March, February was a little bit muted in mortgage books was
Surging 30-Day Delinquencies Even in Prime Borrowers
26:18
uh prime delinquency early stage and then I saw it even worse uh in March.
26:24
This this is very unusual and now all of the uh people reporting out there. So
26:30
what Black Knight (ICE) does is uh they can say delinquency went down last month
26:35
because what happened? They don't include foreclosures in their delinquency number. So, sure, you had a
26:41
whole bunch of your really delinquent move into your foreclosure. So, they're out of your headline delinquency, but
26:46
they also don't tell you how much of it was 30. They'll talk about early stage delinquency, which is 30 uh to basically
26:54
60 days. That's what they consider early stage. Well, I don't like 60. That tells
26:59
me about seasoning. But an increase in 30-day, Adam, is is huge. This is how I
27:06
mean in June of 23, this is how I knew everything something was really up in FHA because you just saw this massive
27:12
leap into that early stage delinquency because and we talked about it back then, but we are addicted to our credit
27:20
scores in the United States and everyone knows once you cross that you cross that
27:25
30 line, you're getting that uh credit reporting. And so if you had a hope of a refinance, that's over. if you had a
27:32
hope of, you know, even a hard money loan or something like that, it's going to be a lot harder. So, this is an act
27:39
and this is so I what I wrote today because I I tweeted out those articles on the foreclosure increases and and
27:46
based on the responses I was getting at um it the prime bars have entered the
27:51
chat which means that that that lower rung they've been suffering for years.
27:56
It's been awful for them and they've just been doing one workout after another trying to make ends meet, trying
28:02
to stay in their home. But now you're seeing the stress in the prime borrower and to me that is a huge tell.
28:09
Okay. Um so just to make sure I'm clearly understanding the post 30-day delinquencies, we are seeing a surge in
28:16
those. So on the FHA book, um so like on the serious delinquent side, so there's two
28:23
things really dry going on right now. On the seriously delinquent side, the FHA
28:28
is uh keeping those numbers very high because people are now that those limitations are on those programs,
28:35
they're failing out of those programs at at at a 50% rate. It's kind of insane.
28:40
Oh, so yeah, I mean, this is I I managed to fault. These are numbers you you never see. Um but that's how
28:48
generous this program was, Adam. You didn't have to prove you had the finances to really get this work out.
28:56
Used to you had to underwrite the borrower. I mean that just changed after co but so FHA is keeping the serious
29:02
delinquent very high but they won't most of them won't move over to foreclosure
29:07
until everything expires for them which um after so that whole partial claim if
29:14
this is so complicated so please you know if I'm not making sense tell me but in October is when they put those
29:20
guardrails on well let's say you came under stress in November so sorry before you talk about that just
29:26
quickly define what the FHA partial program, partial claim loan program is.
FHA Partial Claim Loans: How the Program Was Abused
29:32
And um you know, my understanding from having read your work here is that you
29:37
know, it was like every government program, you know, created potentially with good intentions, but then just got,
29:45
you know, completely taken advantage of. Um you had people that were essentially getting multiple of these partial claim
29:51
loans and getting way more subsidization for properties than they ever should have. Um, and so it was kind of a gravy
29:58
train and but now that is that is getting ratcheted back and obviously now
30:03
it's time to pay the piper. That's correct. They were they would be 90 days delinquent. They would go they
30:09
would get this partial claim. They wouldn't pay for 90 more days. they would go get another partial claim
30:14
because you could get as much as there was no limit and you could get up to 30%
30:19
of your unpaid principal balance and they would take that amount and put it at the back of the loan um to be paid
30:25
off when you pay off the loan um or sell the house. And so people were just going
30:30
back and back and back. Um in John Kamisk's work, he said, you know, if you had one, you were five to seven times
30:38
more likely to get another one. This is just mind-blowing stuff, Adam. And then you also had a whole cohort that never
30:45
paid. They they got the loan originated and then they just never paid. They didn't have to. And I think there was
30:50
coaching out there uh to say this to tell investors this because the investors love FHA even though they're
30:57
not supposed to be able to use it. They they lie. They say it's going to be owner occupied. They three and a half%
31:03
down. You can have a 580 as low in some cases if you give a bigger down payment
31:08
as low as 500 credit score. So, so what happened in October? They said you get
31:14
one of these every 18 months. Also, you have to pay trial payments to
31:21
prove that you can actually afford your loan at this point. So, you have to do three months of that.
31:27
What'll happen? So, let's say that borrower November comes under stress. They get called very quickly. And this
31:33
is why talking about the 30 plus, 30 to 60 and 60 to 90 is very different. But
31:40
that 30, they get called, their first call comes at day 16, they get hammered
31:45
at day 36 with notices and mail and things like this. Um, so typically they're going to go into those programs
31:51
very quickly. Um, but what's happening with the ones that say, "Hey, I need this partial claim." They're being told,
31:57
"Yes, this is your last one, but you have to make three successful payments before you officially get it." And
32:03
during that whole time, you're going to be reporting as delinquent to credit. Well, the servicesers are going to wait
32:09
until that three-month period has expired. So, they're going to wait, let's say they talk in November, they're
32:15
going to do a partial claim for December, uh, January, February. So, let's say they don't make that first
32:21
trial payment in December. They keep getting called, "Please make this trial payment. Please make it, please." And
32:27
then, uh, they don't, they don't, they don't. The service is going to wait that full three months. And this is where it
32:33
gets your head exploded. they they can still get an additional forbearance if
32:38
they haven't taken one since co and I think some of them have uh for uh a full
32:46
year if they call in every month but the thing on the FHA program is we're seeing
32:52
the no contact higher than what we saw during the GFC
32:58
and what that no contact represents are the investors and I have talked to
33:03
several of them this has happening. I'm not making this up. They're walking away. They're just like, "I can't I
33:09
can't I can't sell this home because I bought it down in Cookville, Tennessee, and it was one of these boom towns and
33:15
and nobody's nobody can rent it. Nobody can buy it. Like, I I'm walking away."
33:20
And they do. And so, so you're going to have some people who really want to stay
33:25
in their home will have one more chance if they haven't used it all up. But
33:31
those that are walking away, which is at 17% of the 90 plus delinquency right now, that they don't care. And so that's
33:37
who's driving the biggest surge in foreclosures right now. That's the FHA
33:44
side on the and and and I wrote today in my post that, you know, we have to remember that FHA delinquency always
33:51
peaks before the prime books because they come into trouble first. Your weaker players stumble first.
Investors Walking Away & Prime Borrowers Entering Distress
33:56
Exactly. Exactly. So they peaked last time in 2008. Prime Book delinquency
34:02
didn't peak till 2010. And so what's happening on this 30 plus side is sure
34:08
you're getting a little FHA in there, but it's a lot of it is now Fanny and
34:13
Freddy, which I haven't seen this before, Adam. This is new, which tells you cuz Fanny and Freddy are smart. They
34:20
sell their non-performing loans off and so their delinquency always looks very, very low. But you can't hide it in the
34:27
30-day. You can't hide it because that is telling you this is new distress. This is not old distress. This is new
34:34
distress. And these are borrowers that were once prime making a decision to
34:40
have their credit hit. Wow. Okay. So, um we've got the
34:46
investors in the FHA program basically saying, "All right, I'm out of here. This is I'm on the way to jingle mail
34:52
here." um you've got the other um kind of lowquality um
34:58
borrowers, some of whom might go through the whole I'm going to call you every month for a year or whatnot, but
35:03
probably a good chunk of them are not for whatever reason. So that's going to be leading to further foreclosures. And then you're saying we're also seeing in
35:10
the better books more people from the prime category begin to now
35:15
enter this this danger zone. Um, okay. So, it sounds like you you are expecting
35:21
um I guess first question is is are we actually seeing an increase in foreclosures yet? It might be early
35:27
days, but are we actually seeing the foreclosure numbers start to move here? Absolutely. I think u year-over-year was
35:34
something like 26%, we've seen actually for the past several months. And so, you
35:39
have two things when you track for closures. That's going to be your starts and your sales. And both are important.
35:46
your starts typically will get your borrower into to call like you know you
35:51
get the notice hey we're about to send you to foreclosure they might call you know at that point. So that's that's
35:56
really important to look at that and then kind of see what that cure rate is. But then you have your foreclosure sales
Foreclosure Starts & Sales Already Rising – Q4 Surge Expected
36:03
and both your starts and sales are going up right now. And so yes, they're coming off a floor like and I mean just they
36:10
were so low because of all of that intervention which was the you know that was the point of the intervention is to
36:17
keep them low but they're now coming off the floor and this is they're just going to continue to climb from here. Now,
36:23
you're going to have you always have push and pull with delinquency and foreclosures because they will fall out
36:29
for the craziest reasons that don't have to do with loss mitigation at all, Adam.
36:34
Um, but some of them will fall out because of loss mitigation. Um, but now
36:40
we are really entering that time period when from from here we're just going to
36:45
have this steady smart steady march. Um and and that's just going to increase
36:52
increase and then by Q4 uh you are going to have a material population as those people that called
36:58
in November um are basically uh cuz those three months they didn't pay their
37:03
trial payments they're al they're going that would have to go into the forbearance. So, right around Q4 after
37:11
the election is when you're going to start to see uh
37:16
and I'm not laughing about this, it's just the data just got really interesting and and so but you're you're
37:22
going to start to see a real material buildup of sales. Um, and at the same
37:28
time, and this is this is the bad news about the back half of the year, that's the same time when that marginal buyer
37:35
will typically be more of the distressed. Uh, I'm sorry, that marginal seller will be typically more of the
37:42
distress because they're selling out of season. And so, um, you're you're you're going to be you're you're going to be
37:48
hammered on all sides in the fall. And so, I I think that that's when we will really start to see that material. And
37:54
then I think you know that's really the beginning. We're just at the beginning stages for Fanny and Freddy. So if we
37:59
don't get some and the government will intervene in some way or another, but the only thing that's going to bring us
38:05
solve this foreclosure crisis is going to be um an improvement in the macroeconomic picture. And I'm I'm not
38:12
seeing that right now. Okay. Um that's great. I'm gonna ask you
38:17
to do me a favor and and wrap that up into a quick little sound bite that I
38:23
can use as the intro uh to this conversation, Modi. So, what I hear you saying is is um hey, foreclosure is
38:30
going to get way worse from here. Um and that that wave is going to slam into um
38:36
the weakness that we're already seeing um you know, in the buying market here.
38:41
Um, and so we're going to have a bunch of basically distressed sellers uh slam into still a bunch of buyers that can't
38:48
buy. Um, and yes, low prices, lower prices will will help things here, but
38:54
it sounds like you're saying that's probably not going to be enough. You're not going to really see you're not going to intend to see a um recovery in all
39:02
this until the macro picture really changes. And apparently I think that means
39:08
real wage increases material for folks over some period of time things like that where the the bottom half of the K
39:15
stops descending starts rising a little bit. Yeah. Okay. So what since since
39:20
we're focusing this on on foreclosures and whatnot give give me the punchline of okay this is what I think's going to
39:26
happen. This is why I think it's important to keep your eye on the foreclosure ball going forward. Yeah. So what we have seen over the
39:32
really the past three years is we've just seen cracks in the dam, Adam. We've seen little bits of rivullets kind of
39:38
coming out. You know, last year we started seeing water come over the dam,
39:44
but but just a a tiny tiny bit. Um we are now getting to that point where that
39:50
trickle, that tiny bit of water is going to turn in. It's going to be building
39:55
from here. And so that you're going to have around June, you're probably going to start to see that really take off.
40:02
And by the time we get to Q4, um you are going to have a really um sizable
40:09
foreclosure population, which as you say, at the same time, that distress,
40:14
there's no buyer to come and buy these homes where those margin sellers need to
40:19
get out of the market as quickly as possible. and those two things coming together including increases in gas
40:26
prices and also electricity right here TVA we're hearing 16% increase
40:31
year-over-year uh in electricity that will be implemented next month um and that's going to happen all over the
40:37
country like these things are these forces are just going to push um that
40:42
that distressed buyer I'm sorry distressed seller kind of uh to the breaking point and that dam uh is going
40:49
to break really in Q4 four in my opinion. All right. Um, thank you. Um, and folks,
40:56
you will have seen that now as the intro when you first started playing this video. Um, okay. So, uh,
41:04
where to go from here? So, well, let me ask you this. So, uh, obviously this paints a pretty grim picture on average
41:12
for what's likely to happen from housing here. Um, in addition to just the foreclosure
41:18
stuff that we've been talking about, um, you, I believe, have continued your practice of of going out and doing boots
41:26
on the ground reviews and and and visitations of a lot of, um, you know,
41:31
key markets in in in the US. Have you done any recently? And if so, what were your key takeaways from those?
Boots-on-the-Ground Report: 3,200-Mile Driving Tour
41:37
Yeah, I just got back from uh, I drove 3,200 miles in uh, the past two weeks.
41:43
And so, um, you know, I tough to do that when gas prices are as high as they are. I I know, you know, luckily I got a
41:49
rental so I didn't have to get the really expensive gas. Um, but, you know, I I was down at a
41:56
housing policy conference down in Florida and so did, you know, a secret shopper tour, looked at some of the new
42:03
home builds, and they just continue to sort of lie. Uh but the building hasn't
42:08
stopped Adam in so many places which is absolutely insane when you look at the inventory that's out there. The
42:14
multi Why is that? Because the the builders is it still the case where new homes are costing less on average than
Why Builders Are Still Overbuilding Despite Inventory Glut
42:21
existing homes? We're still in that weird time. We don't know. I think we're supposed to
42:26
get new home results today or tomorrow. I don't I think it's tomorrow. Um but we we don't we don't know. We we are
42:34
missing we we just have January for new home sales. So we we will get February and March here shortly, but likely I
42:41
mean likely. I I don't see that it would have flipped. So um and remember
42:46
why the continue rush to build here? Was it just a massive pipeline they had to get this stuff done or they
42:51
are they just making dumb decisions or are they actually making some money off of this? So that's a good question. Uh but you
42:58
can see from the builder results they're not doing that well. I think some of these, Adam, are what I've heard is that
43:06
a lot of times the developer gets paid no matter what. You know, they're getting some sort of incentive from the
43:12
cities. Okay. Um and and then the national builders, you've heard many of them say they're
43:18
pivoting back to their old model of just, you know, uh contracting with an
43:23
individual and building that home for them versus all the spec we saw. Sound sounds crazy enough to work. Yeah.
43:30
I mean, yeah. This is what always happens, right? You overextend, you get built, and you just have to get back to your knitting. Yeah.
43:36
Yeah. So, I think there's a variety of reasons. Um I think people again, they've just been extending and
43:41
pretending and hoping and praying. I mean, you talk to people today, they're still waiting for, you know, rate cuts.
43:47
They're still I mean, we've been and they've been waiting for three years. And so I think I think the builders
43:53
probably know I mean they've been in talks forever with um the administration on some sort of bailout and and and
44:00
around affordable housing and pivoting. And so I think there's a variety of
44:05
factors that once you sort of um break ground if you rarely stop. Uh that's I
44:12
mean I've just heard that from everybody. So but I think we'll hit the point. Uh, I mean, what a convenient
44:18
time not to know anything about builder sales this spring. Um, are there just, you know, I'm think
44:27
I'm thinking of Ronald Reagan's, you know, scariest nine words. Um, I'm from
44:32
the government and I'm here to help. Um, is there just a perverse incentive going
44:37
on right now for some of these these local builders where you said the builder gets paid for whatever reason.
44:42
maybe the, you know, they they made a commitment and the municipality said, "Hey, look, if you commit to build XYZ,
44:48
we'll give you these tax breaks or kickbacks or whatever." Um, so there's a perverse incentive to still build in
44:54
these markets where the conditions are weakening. And so, yeah, even though the builder is honoring whatever agreement
45:00
was made, it's just not a good thing for the local housing market because you're just pushing inventory onto a system
45:07
that doesn't need more inventory right now. Correct. And at that housing policy conference, Adam, I I don't think I've
45:14
gotten more death stares in quite some time. Like I was Oh, no. I mean,
45:19
were you were you speaking truth to a bunch of bureaucrats or is that the Yeah, a bunch of policy makers. The head of housing policy at the American
45:26
Enterprise Institute stared me down during my presentation and some other folks. But, you know, the only thing
45:32
that you heard all day except for mine and my colleague John Brooks's presentation was shortage. And I
45:38
couldn't believe it because I think I've shared with you that the builders were the most delusional during the last cycle at my company. They just kept
45:45
telling me it's all going to be fine. I'm like, you're crazy. And they just kept saying it. The person that challenged actually uh
Housing Policy Conference: Shortage Narrative vs Reality
45:52
John Burns, they had someone there to do their research and was talking all about all the demand that's going to come from
45:58
those millennials that somehow someday are going to be able to afford these houses. Yeah. Um the builder's like how can you
46:05
ask me to take this risk and I couldn't believe it. I was like that's that's a
46:11
builder asking but but this is what what's happening in these policy discussions is
46:18
they're they they and what I now realize it's just all one big you know it's one big party like so so the politician uh
46:26
you know wants to get the money from the developers so they sort of partner together on what is the thesis to get my
46:33
pet project done and the money just keeps going in this loop uh but it has
46:38
nothing to do what the actual problems are and what the actual solutions need to be. Um, and so yeah, everybody's
46:45
talking about a shortage. That's so depressing and it's I mean it's not unique to this situation, but
46:53
yeah, often times it's a pet project, you know, for to get elected or reelected or just, you know, burnish up
47:00
my short-term need as a politician. We make this commitment. We provide this perverse incentive for the builder to
47:06
build no matter what. And in a number of cases, by the time that inventory is coming on the market, that politician
47:11
may actually be long gone. Right. Like it's kind of like nobody wants this, but it's happening anyways. Right.
47:17
Right. Right. And and it's just and it's really depressing because what you're seeing right now is you're seeing all
47:23
the people that maybe weren't involved in all this, you know, kind of looking and they're saying, "Oh man, I could get
47:28
some of those affordable housing dollars. like I can, you know, I can build uh this housing over here and get
47:35
a guaranteed paycheck. Here's what I would say to people. Watch out because these municipalities are running out of
47:41
money. So, that guarantee uh that you're going to be get paid, I wouldn't be so sure. Um but I should mention the
47:47
politician that put this this forum together did want that alternative viewpoint, but um we were we were the
47:54
minority. But yes, that is how it works and you can see it. Um so a lot of people getting in right now at the last
48:00
stage of the cycle. So let me ask you this and of course you know you also have the complication in
48:05
these situations where you know there a lot of people involved in the municipality who are just
48:11
they need to justify their jobs. So ongoing projects like this are just helpful for them. Right. So
48:16
pering offices. Yeah. Yeah. So you've said look um a lot of these municipalities are running out of
48:22
money for a whole bunch of different reasons. Right. Um, and I'm going to guess for a lot of them it's probably
48:28
too much bureaucracy and they're spend they've spent money in ineffectively for too long and built up lots of debts and
48:34
all sorts of things, right? Um, but to your point you're saying, you know, one of their like the drowning man, they
48:39
just grab for anything, right? And one of the things they're grabbing for is property taxes. Well, at least that's a way to get some more money coming in,
48:45
right? And so that's raising the cost of home ownership. How does this clear in your opinion? you
Municipal Fiscal Crisis, Property Tax Hikes & Potential Bankruptcies
48:52
know, do we um obviously taxes can only go up to some level before it just
48:59
people are just like, I can't pay it. It's just, you know, we're all leaving, you know, whatever. You you just cause
49:04
your whole tax base to flee. Um now, these municipalities maybe can
49:09
declare bankruptcy if that works out in some way. Um but
49:15
like practically, what should folks be bracing for here? Will there be periods of time where it's just like, hey, our
49:20
municipalities, kind of like the builders, they're going to have to go back to their knitting. They're going to they're going to just focus on keeping
49:25
the the lowest level of Maslo's hierarchy of needs things running, but like forget everything else. And there's
49:32
going to be a period of a couple years where just whatever you're paying, you
49:38
know, in taxes, it's only going to fund the basics and you're not going to get a bunch of bells and whistles for it until
49:43
they've rebuilt the coffers. Or is it something else? Yeah. No, I I think I think you're going
49:49
to see bankruptcies. I we just saw one of the first uh defaults on bond payments in a city in in Texas who
49:56
decided, you know, with their American Rescue Plan money that building a theater that everybody could anyway, it
50:03
was a whole scheme. But I, you know, I I think that you're going to you're going to come what's going to happen is all of
50:09
these municipalities. So any bells and whistles you had and and unfortunately Adam the first place it's going to hit
50:16
is in jobs. I mean we've seen so I think a lot of people have talked about this probably on your show. I've talked about
50:22
it ad nauseium that the only increases in employment we've seen are in that private education and health services.
50:28
That's where all these government jobs are that got um layered on with that
50:34
American Rescue Plan Act money um that went out and that's how you got a ton of
50:39
uh you know homeless programs, down payment assistance programs, a lot of the immigrant programs. So, the first
50:46
thing that's going to happen is yeah, your basic services are going to get cut. Like you're already seeing it like
50:51
we have we can't pay the police. Like I'm seeing this in all these little towns. But more importantly is the loss
50:58
of jobs because that has been the only thing keeping unemployment at lower levels were the increases in those jobs.
51:05
And so that is going to be uh the biggest impact. I think they're going to
51:10
have to let go of a lot of these people. So you're just talking about a situation where uh you're lo you know you're
51:16
losing your job. Uh your property taxes are high, your insurance is high, your electricity is high. I mean there's just
51:23
no there's no way out. Um and unless of course there's some sort of government
51:30
intervention to slow it down which likely there will be and I'm not saying that but um Adam that I think the only
51:36
way we get out of this is uh we are going to have to let this all flow through the system and it it could be
51:42
very very disorderly in a lot of these counties who um you know where things
51:50
aren't sitting on a bank's balance sheet and and and suddenly no one's cutting the grass and No one's, you know, fixing
51:57
the broken window. And I mean, this this could get So, not only are they not going to be getting their property tax
52:03
that they thought they were going to get, Adam, they're going to their expenses are going to increase because the way they made it out last in the
52:09
last cycle is they just charged the servicesers to high heaven, the mortgage servicesers to, you know, winterize the
52:16
properties, make sure that they were in good shape. But the more of these properties that have been transacting in
52:24
what I'll call private note land, and I was just at that conference in Nashville, um the more responsibility
52:31
for the counties who are just not equipped to handle these waves of default.
52:37
So there's God there's there's I'm thinking of sort of three colliding big trends here.
52:44
um there is just the national price correction that you think just has to
52:49
take place because home prices got too far ahead of fundamentals, right? So
52:54
that just has to play out. Secondly, we've got this sort of municipality, I'm
52:59
going to call it bankruptcy wave. Um it might not be bankruptcy in every case, but this this issue of being the
53:07
municipality is just falling on harder times, right? And that's something I think, correct me if I'm wrong, but I
53:14
think you would encourage people watching to really like look at where they live and get a sense for what your your the
53:19
fiscal situation of your town or city is. Because all things being equal, if I
53:25
live in a town that um isn't going to have this problem, um home prices are
53:31
going to stay a lot higher in my town. they're going to get or or hit a they're going to get hit less than in a town
53:37
that has to declare bankruptcy, you know, drastically reign in its services because people aren't going to want to
53:43
live there, right? Why why would I want to live there and get taxed and get less in return for that? You know, let me go
53:48
move to a place where I'm treated better, right? So, you got that wave and then you've got the the boomer die off
53:53
wave that you and I have been talking about. And all three of those, in fact, I think the price correction wave might
53:59
be the shortest of the three time-wise, but those all three of those are pretty longived measured in years and in some
54:04
cases maybe decades. That's correct. Yeah. This is not so I
54:09
mean, you know, if we have some sort of um gray rhino event, you know, where or
54:15
some sort of accelerate like a credit crisis or this war gets even crazier, like you could see a rapid home price
54:22
decline. um you know 12% is what you saw in the last cycle is the biggest like
54:29
year-over-year uh price decline but if we don't it's going to continue it's
54:34
going to continue for some time as a slow bleed and just kind of chunking down you know but then it's
54:41
going to accelerate again I think as those other two things really start to hit and so you might have like
54:48
um just waves of it if that makes sense. Sure. No, I I mean that's sort of what I'm seeing is is
54:55
I don't want to be painting too grim of a picture here, but the housing market's going to have some pretty big headwinds
55:02
against it for the coming decade or two. And the two I'm thinking of the boomer
55:07
die off the boomers. Yeah. And and there will be, you know, some cycles within that. But,
55:13
you know, we just identified three pretty big headwinds that are going to be operating at on different timelines.
55:19
And so, yeah, there'll probably be moments where it feels like, okay, well, maybe we bottomed or maybe I see some
55:24
sunlight and then, oh, wait, no, here comes the next the next wave. Yeah. Um, okay, couple quick things. We're coming
55:31
up on the hour. Um, you mentioned you were at this private note uh conference.
Private Credit & Non-Bank Lending Risks in Housing
55:36
Um, we've talked about this a little bit in the past um about the risk of private credit defaults, what risk they may have
55:45
on the the the lending the home lending uh environment. Now that we have a little bit more visibility than we did,
55:52
you know, the couple some of the last times I talked with you, Melody, how big of an issue, if at all, is it seeming to
55:58
be? Private credit. Yeah. Um, yeah, private credit. We haven't even seen all of it yet, Adam. And and
56:05
this is, you know, I was uh having this debate with some Wall Street analysts at
56:11
at a a dinner that, you know, this private credit isn't systemic. This is their view. uh because there is really
56:18
some good software out there and and I say I don't think you've looked at to where all private credit went and one
56:26
place they went last year was into commercial real estate and they did 25% of that lending increase. But the other
56:32
thing is they've done a ton of little uh little programs here in mortgage like the home equity investment um loan which
56:42
is like a almost like a reverse mortgage. Um, okay. Where you kind of share the equity. So,
56:49
put it this way, there's a ton of little programs out there, Adam, that we have not seen yet rise to the service
56:55
surface. And so, I think private credit itself um has not we're just seeing the
57:01
beginnings of this, as much as people want to say, you know, we've seen the worst of it, especially in the real
57:07
estate space. And so, these private credit actors have been a lot of people funding this private note space. And
57:15
what is a private note? This is when a bank is not involved. This is a personal
57:20
lender. Um, and sometimes they're an LLC, sometimes they're, you know, a small group, but they are lending.
57:27
They're doing seller financing and a whole host of other types of non-traditional products. Um, and these
57:33
are not being tracked anywhere. Um, and most of them are not reported to credit. Okay. So, just to make sure I understand
57:40
these private notes, I'm guessing they can be anything from a mortgage to um to
57:45
a refinancing or whatever, right? But it's not coming from a bank. It's coming from one of these these private lenders.
57:51
So, um, this movie still hasn't fully played out as you were just saying, but
57:57
in terms of your level of worry about this impact on the housing ecosystem,
58:03
cuz presumably if this dries up overnight, I'm not saying it's going to, but if it did, well, that's, I'm
58:09
guessing, a material part of financing for this space that just goes away and and the banks didn't want to loan that
58:15
stuff anyways. And so, it's not like someone's going to necessarily step in. That just means, hey, there's there's
58:21
less support for the eos. There's less liquidity. That's right. So, um, scale of 1 to 10, 10 being
58:27
Armageddon. Um, what's your current level of worry about
58:33
about the sort of the non-traditional lending that I'm seeing? I'm probably at like a four to five. Um,
58:40
because but what scares me the most is that there's just no visibility at all. The Fed has zero visibility. If if a
58:47
mortgage is not being reported to credit, Adam, then how can we actually know what the mortgage equity picture
58:53
looks like out there? And I and I think that what I learned this last time, this is my third trip um
58:59
to this conference in Nashville. And what I learned is I got confirmed. I'd heard from some smaller servicesers they
59:05
weren't reporting to credit because again remember this also includes those hedge funds that bought up all those
59:11
non-performing loans from Fetty from Freddy Fetty Freddy. Um and so this is I
59:19
just think that we unfortunately I think what this has done is giving a very um
59:26
sort of a a a wrong picture on equity and delinquency. And I think that that's
59:32
what concerns me the most is that mainstream media has been out there looking at that old Fed schedule on
59:38
commercial bank delinquency as if that is somehow any indication of what's going on in the mortgage market. Because
59:44
today I would say maybe half a person out of 10 believes that we have problems
59:50
in mortgage. Okay. Okay. So, when you say it's giving the wrong picture, you mean it's giving a falsely um positive,
59:57
correct? Or at least not nearly as negative picture as we used to see things. Okay. All right. I'm going to start to
1:00:03
wrap things up here. Um let me ask you this though because we've been we've been pretty uh pessimistic so
Where Is the Optimism? Affordability for Younger Buyers
1:00:09
far through here. Where, if any, for you is the optimism in the housing market
1:00:15
picture right now? Is it just, hey, for those of you who've been priced out, you
1:00:20
know, time's on your side here, eventually you're going to be able to affordability is going to come down. Um, is it something else? But like, where
1:00:27
what gets you up in the morning hoping that you'll be part of of of the people fighting and and um manifesting a better
1:00:35
future here in the housing market? Yeah. I And I think what you just said is so right, Adam. It's like we all need to take a deep breath. We all want what
1:00:42
we want when we want it. But I think that the the dynamics here are just I mean unavoidable like in terms of uh
1:00:51
there are just you know this this aging out that's going to occur. And so what
1:00:56
gets me excited is when I see actually you know a in the armor of uh the
1:01:03
sellers who believe that somehow um these home prices should look like this. So, I'm very excited about um the fact
1:01:11
that we could be seeing some relief for our younger Americans. And, you know, if if if only we can get them to hope
1:01:18
again, Adam, I mean, that is important because I do believe this is going to play out. And I think a lot of them have
1:01:23
given up. I tweeted out um or retweeted a chart today about how many people have pretty much given up on ever owning a
1:01:30
home. Um so, that's what gets me up. And and I just think, you know, the other
1:01:36
thing for those that really can afford it, have a year reserves and all of that, I think you can find some deals
1:01:42
out there looking at foreclosures or at these auctions. Um, but you have to be
1:01:48
careful. Uh, but again, that's only for people that truly can afford it, have a year of reserves in the bank, and do a
1:01:54
sizable, if they're taking leverage, a sizable down payment. Um, so that I am
1:01:59
getting excited like I I shared with you is a friend of mine that I went to that auction with has a beautiful home which
1:02:08
what he paid for at $270,000 versus they he just got his appraisal or assessment from the city and they're they're saying
1:02:14
it's $555,000. Um, so he's going to have to go do that fight, but this is an affordable home
1:02:21
for him. And so I think more and more you're going to start to see that. And so that is really um what I'm excited
1:02:28
about because I just want our younger Americans to believe that they're they're going to be able to have sh have
1:02:34
and afford shelter. Yeah. Um there's a whole host of um
1:02:42
undesirable factors that come when people start to lose faith in the social contract.
1:02:48
And this is a big one, right? where people are are just saying, "Look, yeah, I I hear you telling me if I go to
1:02:53
school, work hard, I'm going to get, you know, the American dream or at least the middle class lifestyle." But most people
1:02:59
are saying, "I just don't believe it anymore." And you know what's happening with younger people? Well, they're, you know,
1:03:04
giving up on buying a home. They're often times checking out um often times of of the employment market um because,
1:03:12
hey, no matter how many hours I work, it's just not going to get me where I want to go, right? This is Nick Eberstat's, you know,
1:03:18
Yeah. higher suicide rates, deaths of despair. Yes. And and you know, millions and millions
1:03:24
of of of able-bodied, active, you know, working age people who were just clocking out, right? Um it's why a big
1:03:31
reason why um family formation is being delayed or forgone altogether. None of that is good from just a societal
1:03:38
standpoint. So I'm I'm right there with you. To me, I think you don't have to share this, but I think part of that
Breaking the “Housing as Speculative Asset” Mindset
1:03:45
getting to that stage is not just prices coming down, but housing, you know, starting around the new millennium,
1:03:53
there was a shift in people's attitudes towards housing where it was it was basically shelter and kind of a forced
1:03:59
saving vehicle that hey, you know, it's an investment. Yeah. Yeah. But but I mean it was almost what
1:04:05
it wasn't looked at though as a in speculative investment which I think
1:04:10
over the past 25 years the mindset has become more like oh you got to get into a house because then it's going to grow
1:04:15
and you're going to have all this home equity and blah blah blah blah and my house has got to go up x% on average a
1:04:21
year or else I'm going to start feeling a negative wealth effect and all that type of stuff. That mindset I think has to be broken
1:04:27
somehow. 100% 100%. Okay. And and I think a part of that is we got to get investor money out
1:04:34
of the housing market. Now, I think there will first off folks, there will always be a need for landlords. So, I'm
1:04:40
not saying that we get rid of all landlords, but um and I don't know necessarily where this line should be
1:04:46
drawn. I am and I've been very vocal in the past about um I'm just totally against big institutions owning single
1:04:53
family homes, right? They want to buy apartment complexes and stuff, fine, right? Uh but sing they should not be
1:04:58
competing um with aspiring home buyers for a single family home um because it's
1:05:04
just a totally unfair playing field, right? Um there probably some other elements in there. Again, you don't have
1:05:09
to agree with everything I'm saying here, Melody, but but what are your thoughts on that? Yeah. You know, so I don't like it
1:05:17
either, Adam, but if we would just get government out of it, the investors are
1:05:23
going to go. And and I think that a lot of people forget that the institutionals came in at the request of the agencies.
1:05:31
Fanny, Freddy, I was at those auctions. They they pushed I know they were invited in. I'm not necessarily criticizing them because
1:05:37
they were just responding, but I just think it's a totally corrosive element. Yeah. And it's and it's happening and I
1:05:43
mean I met with one you know exactly who they are in September and he said I am selling as fast as I possibly can and um
1:05:52
that's what they're doing right now. I mean it's quiet. They're not going to go around announcing it like we're
1:05:57
fireelling but that's why you're seeing prices come down in places like Atlanta and San Antonio because they're
1:06:02
fireelling. And so I think so I don't like it either, but I think if we just stop intervening um that naturally
1:06:10
they're gonna get their hands slapped so hard, they're not coming back because they know what's going to happen. I
1:06:17
mean, you look at Blackstone (BX) right now. Um you know, Starwood (STWD) just gated its
1:06:22
REIT. Um Blackstone just lost like 21 million on and I and I go look at these Freddy
1:06:29
securizations and I see how much Blackstone's losing. He just lost 20 million on one apartment complex. I
1:06:35
mean, they are taking a bath. They're just we can't see it that, you know, they don't that we don't have the
1:06:41
disclosures, but more and more we're going to start to see it. So, I do agree. I hate it. I hate housing as a
1:06:47
casino. And I I've tried to find out when they changed it in the CPI as in to
1:06:53
how they treated started treating housing as an investment. I think it was around that time frame you mentioned.
1:06:59
Um, so I I I think we're at a point where we could literally break that idea
1:07:05
that your home is a speculative asset through these this next next decade or
1:07:11
next couple of decades where the supply just simply overwhelms um you know kind
1:07:17
of the demand. Okay. All right. Well, first, uh, wrapping up, I I want to congratulate
Final Thoughts, Advice & Where to Follow Melody Wright
1:07:22
you, um, Melody, for being one of the, you know, the fighters for that better
1:07:29
tomorrow in the space. Um, you've been doing it for a number of years now. Um, you've taken a lot of slings and arrows
1:07:35
for it. You continue to. Um, I know it's not popular, especially to go into a room of of people that are kind of
1:07:41
trying to keep the status quo like you recently did and take their their slings and arrows. Um, and I also just want to
1:07:47
say personally, um, it has been really, really fun to watch your star continue
1:07:53
to rise in this space. So again, just kudos to you for everything you're doing. Well, thank you. I, you know, it it the
1:07:59
mission is education. That is the purpose because I am so worried about
1:08:04
our younger generations. All right. Well, um, most important question of the day. For folks that
1:08:11
would like to follow you and your work in between now and the next time you come on this channel, Melody, where should they go?
1:08:16
Uh, so you can find me on X Twitter at M3_Melody and on uh, Substack at M3Melody. And I
1:08:24
encourage you just even sign up for the free version of the Substack. I try to give a ton of data and um, sort of the
1:08:31
thesis so that if you know you can't afford it, you can still get the tools to figure this out in your own market.
1:08:37
All right, Melody, such a joy. Folks, please uh join me in thanking Melody for giving so much of her time and her
1:08:43
expertise and just being a guiding light for so many in this space by hitting the like button and then clicking on the
1:08:48
subscribe button below as well as that little bell icon right next to it. As a reminder, we just passed 175,000
1:08:54
subscribers. Trying to get to 200 soon just because that will get even more attention from the YouTube YouTube
1:09:00
algorithms for this channel. And uh lastly, for a lot of people, buying a house, selling a house, uh it's one of
1:09:08
one of the most and in many cases the most um important financial decision your household might make. And so if
1:09:14
you'd like to get some help with decisions around that or of course just anything related to your um your financial wealth, feel free to talk to
1:09:21
one of the financial advisors that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. To do that, just
1:09:27
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1:09:34
don't cost anything. There's no commitments involved. It's just a service these firms offer to be as helpful to as many people as possible. U
1:09:41
Melody, always super wonderful to see you. I'll let you have the last word here. Um last word. You know, I just I I think
1:09:48
that we're in really troubling times. There's a lot going on. So, I just encourage everybody to um you know, I
1:09:56
know this may sound cliche, but stay positive. Uh there is hope and things are going to change. Uh this picture is
1:10:03
going to change. So um you just be patient and and try not to let the FOMO
1:10:09
uh get to you, I guess, is what I would say. Adam. All right. Very well. Wise words, Melody. Always such a pleasure. Thanks
1:10:15
so much, Melody. And everybody else, thanks so much for watching. Thank you.
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