Short Sales Are Back. The Housing Market Is Cracking (Really)

While the stock market may be on fire, the real estate market is not. We're seeing demand collapse, we're seeing transactions stall, and short sales and foreclosures are starting to pop up everywhere. Let's dig in. If you're a real estate investor, a buyer, or a seller, or even a real estate agent, this information is really important for you to understand so you can appropriately guide your customers and make the best decision for you on your real estate needs.

So, here's what we're seeing right now. This just came out. Nick from Reventure just shared this. Is a thousand short sales have popped up across Florida.

We are seeing especially here in Jacksonville where I am a ton of foreclosures come through, specifically in areas where there's new construction and folks bought in with an FHA loan 3.5% down or a VA loan 0% down in new construction communities where now those prices have dropped nearly $100,000. They've experienced job loss or some other personal event that has caused them to have to sell and the transaction cost of buy and sell is more than 10% or up to 10% in some cases and this causes these properties to be underwater. Now, them being underwater is a big problem because it stops these transactions from going through. You can negotiate with the bank and the short sale process can take three to six to even more than a year for these properties to process through.

You can also see there's lots of areas of Orlando and even South Florida where we're starting to see these short sales pop up across the board. In fact, there's some people who don't even know that they need to sell short. They forgot that they did a workout program from 2020 to 2025, these programs where they had missed a be delinquent, miss a payment, and then lump it in onto the back end and then they would only remember that they had this second basically mortgage on the property that has to be paid off to facilitate the transaction and they're now officially underwater. And obviously, with housing prices coming down, we are going to see more short sales pop up across Florida.

We're already starting to see foreclosures in Florida up 43% year-over-year in Q1 2026, and we expect this number to continue moving up. Now, a local resource here in Jacksonville notified me that he's already experienced nine times more volume than he did the prior year just from banks reaching out to him to start the foreclosure processes. So, banks are starting to work with their asset managers and rebuild their pipeline to be able to facilitate these short sales and foreclosures. It's a clunky process.

Florida is a judicial state, so it has to go through the court system, and it can take sometimes for it to process through, but this is going to be the next story that's hitting Florida and across the Sunbelt and even areas in the northeast that may surprise you that these short sales and foreclosures are starting to pop up. But, this is where we're seeing delinquency, right? So, there's delinquency not just around the Sunbelt areas, but you can see it's even in the northeast in Philly, Newark, Detroit. Uh, you can even see Jacksonville's number 28 on the list in Laredo and Texas, obviously, because they had that massive boom, right?

We had zero interest rate policy, pushed all the speculation, pushed prices up, a lot of net domestic migration to the areas, builders went crazy and built, and then they made these prices that are completely unattainable for the middle class for how much they make in wages, and now we have this small bubble that we're seeing in Florida and Texas. And again, these uh, FHA and VA programs, they changed the rules on how to jump through the hoops when they go through delinquency, and they changed that in October of last year. So, we're expecting to see more short sales, more foreclosures, more distress show up as since these programs changed because people have a much harder time with lumping their payments onto the end of their mortgage, and they're going to have to actually process through and go through foreclosure. So, this comes from WalletHub, which is a great visual.

But, properties are already going under water, and this is where you start to see the foreclosures and short sales. You can see, obviously, Winter Haven, Florida. And people And this is uh, the share of outstanding homeowner mortgages with negative equity across the board. You can see within a year time period from Winter Haven, Florida, it went from December 2024 to 5.3% of properties with negative equity, meaning the property is now worth less than what is owed on the property.

And this doesn't even include the transaction costs, okay? So, keep that in mind. And now it's up to 10% of properties of people with mortgages there being underwater. Cape Coral, Fort Myers, look, Texas, Florida, Jacksonville, Florida, we obviously jumped as well.

Bradenton, Colorado Springs. So, you can start to see the areas that are now underwater. And as we become more underwater over time, you're going to see more of this distress pop up. This data comes from Resi Club.

Now, inventory is stacking, okay? So, this is the other big red flag. This is new houses for sale by any stage of construction completed and new houses and not started. And you can see that we're near the Great Financial Crisis level already.

And we're still seeing record highs in the stock market, near record lows for unemployment, and we're already seeing tons of inventory that was just completely overbuilt. So, when mean meanwhile, we're getting this narrative from the White House that we have 10 million homes short, but then we're seeing this massive supply glut from new construction that's driving prices down. So, the housing shortage is absolutely not true here in the Sun Belt. Yes, there's some areas in the north that are underbuilt because of the not in my backyard folks.

But here in the Sun Belt, it's a huge problem. There's way too much inventory. The amount of speculation that happened from the zero interest rate policy, from builders, from mom and pops, and this demand shock that happened created this wild speculation to keep building. And now we're going to see some sort of mean reversion, and that means prices will need to come down due to this massive amount of inventory.

But what we're seeing is massive amount of inventory stacking up. At At same time, we're seeing demand just drop very rapidly. This comes from Reventure. Housing demand falls to the near lowest level on record in February 2026.

This is a great demand index. It combines pending sales, mortgage applications, home searches online, buyer sentiment. And combining this narrative, you can see that for the last few years after the Fed raised interest rates in 2022, demand just started plummeting across across the United States. And it's likely that we're going to continue to see demand be minimal moving forward until prices come down.

And we're seeing the mortgage applications are already worse than the Great Financial Crisis as well. And I think this is really interesting to put in perspective. You're seeing that still a lot of people actually make applications. I know this doesn't show that, but what I'm saying is I we see it on the ground.

People make applications, then they compare the mortgage amount that they would be paying versus what they would pay if they had to rent a similar house. And they're realizing, I don't want to overpay by a thousand to fifteen hundred dollars a month just to have a similar property, just to own it versus rent it. Now, of course, we're seeing a record low of contract signings too. So, all of this plays together in pending home sales in December.

You can see it just keeps drifting lower and lower and lower across the board. And this is again worse pending home sales than since 1995 and worse than the Great Financial Crisis, even though we have larger population, all of these other aspects that should be driving more sales, we're still seeing record low sales just because the prices have just gotten out of control. And of course, that leads to lower closed sales, right? So, we went from mortgage applications to pending sales.

Now, the closed sales. Well, you can see closed sales versus 2019. So, March 2026 versus 2019 are down 15%. And by the way, 2019 was not such a great year for real estate.

So, we are already back to the pre-2020 levels in terms of the number of sales and that is possible that we start seeing prices move back towards the around the 2020 level as well. And in 2020 is when things really got messed up with the ratios because home prices outpaced wages in a big way and really created a ton of distortions in some of these major markets as you can see across the board. There's so many closed sales that are down. Look at this.

Des Moines is down 19.4% Albuquerque down 19.9%. There's some even Maryland down the whole the whole state of Maryland down 38.9%. Memphis down 20%. And as demand falls and the inventory stacks, over time sellers will give up and they will start selling their properties.

Prices will come down and we will see more of the short sales and foreclosures becoming through the system. And here's the here's what I like to look at right now. This is why the housing market is actually frozen. The mortgage payment to buy a house is about $2,722 and you could rent a similar house for about 1926.

So why would you pay that extra $800 a month to go buy a house? And I'd love to hear from you. Drop a comment below. If you're going to buy a house and you're just a middle-class person looking to save as much money as possible.

What we're seeing a lot of people actually do is they're saving the difference between the payment to buy, they're renting their house and then using that extra money to invest in the stock market and start getting some equity. And there's some sentiments out there that the new American dream isn't owning a house, it's actually owning equities that continue to run up in the marketplace going to all-time highs. So this is a huge problem as people are discouraged from buying. I think a lot of people do want to buy, that's the good news.

There's a lot of renters out there who would love the opportunity to buy, but the pricing it does not make any sense right now. And when I run the numbers for what it would take to come back into the market, you would honestly need to see prices drop about 30% from here for it to make sense to buy versus rent. And sometimes there are opportunities in different markets to actually do that, to find off-market properties that are in distress, but you usually need cash to actually fix them up and get them to where you would want to make it livable. Now, this is the This is the greatest indicator, which is the house payments as a percentage of median income to show where we are in the bubble.

You can see obviously in 1981, you had 18% mortgage rates, and your house payment as a percent of your income was 47.5%. Now, in run-up to 2008, 38.1%, and now we're at 39.4%. And this means that obviously we're going through these boom-bust cycles because these are when real estate prices went up, and then they came right back down, and then there's a combination of what's happening with the mortgage interest rates. But ultimately, right now in the cycle, prices are simply too high.

The The math stopped making sense, demand is dropping, and supply is increasing. And this is where you can see the top 10 inventory growth housing markets. This comes from realtor.com. You can see that Tampa, Florida had sales inventory growth, Orlando.

This is massive growth. 69.5%, 64.2%, Jacksonville, you know, 59.1. That's where I'm at. Miami is up as well.

You can see where there's tons of inventory come on to the market. And this is a year behind. And by the This data is about a year behind. It comes from 2025, the more updated data.

There's a lot more inventory. But the thing that you might see is you might see inventory come down just a little bit. If you're looking into this data, the reason why is because sellers are getting frustrated, they can't sell their house, so they yank it, they rage quit, they yank the property off the market, and they turn it into a rental. They become an accidental landlord.

And now you have the supply is still there, it's just not an active listing, it's a rental. Okay? So when you're looking at supply, you really want to look at both. You want to look at single-family rental, single-family active for sale, and apartments available for rent.

One other thing to keep in mind is that when they're doing the calculations on the inventory, the so a lot of these builders only put one or two of their units up as supply out there in the marketplace. This is a huge problem because they might have 200 other units behind that. So that's hidden shadow inventory that actually isn't on the market right now. That's important to to keep in mind and it's not showing up in these numbers.

But look, we're already seeing prices come down and we're already seeing negative equity show up in a very short period of time. Usually real estate takes a lot longer to play out. And this is a ton of negative equity. Look at the very high 10%, 6%, 10.8%, 6.3% in terms of negative equity already.

A lot of these again were purchased from 2022 to 2025 in new construction communities that just overbuilt with a ton of speculation. And now those people are underwater and that's why we're going to see more short sales and foreclosures moving forward. The metro seeing the steepest home price index declines obviously. It's just loaded up in Florida.

This chart is kind of terrifying. This comes from realtor.com. Texas as well and also California. So it's it's kind of crazy.

You're seeing Hawaii too. So there's lots of areas that are experiencing this, but it's just for these markets here in the Sunbelt, it's simply because there was so much speculation and now we're seeing a mean reversion process. And this leads clearly, obviously the consumer is not feeling good. They're loaded up with debt.

Repossessions for cars are at a record high. Credit card debt is at record high and the University of Michigan Consumer Sentiment Index is now at a record all-time low. This is the worst consumer sentiment since 1952. So obviously this is going to If you don't feel good about what's happening in the market, you think you're going to lose your job, obviously you're going to not go out there and buy your largest financial investment of your life.

And so what we're seeing is the K-shaped economy, right? So the rich, the top 10% are their assets are booming. They're going out there and buying tons of luxury product. Those are They're buying luxury real estate and the luxury real estate at the very high points are still selling and transacting.

Really well-priced homes that are in good condition, they're still transacting, but the rest of the inventory that's old, aged, needs to be updated, that inventory is coming down uh in price pretty rapidly and the the consumer just doesn't feel good and that's part of the reason why the demand is slowing quite significantly and that's leading to new construction home prices. They used to be 38.4% above existing homes. Now they're negative 1.2. So now new construction is competing with existing homes and they're cutting their prices to be able to compete and get buyers in there and they're also throwing $50,000 in in pay buy-downs for your interest rate to try to get you below 5 or 4% and that's the way that they're drawing in a lot of consumers to be able to sell their product that you saw at the beginning.

It's just this massive glut of supply and we expect this to continue. We think that prices will continue to move down until the numbers start making sense. And existing homes are sell are also cutting their prices. You can see right behind me, this was a record a share of homes sellers that actually cut their price in the month of February at 34.2%.

We're seeing locally 33% of sellers on the market active inventory is getting cut every week, which is incredible. So this is the highest level of cuts since it's ever been recorded in 2012 and I think this is something that we're going to continue to see until the numbers start making sense, which again in my according to my models could be up to a 30% decline from here. So look, we had this announcement the other day that was this housing shortage from the White House. 10 million houses are short.

I have this picture up here Jacksonville right behind us with all these green dots which are just active listings for sale, not including all the rentals and you can barely even see the word Jacksonville. So we obviously in the Sunbelt, we don't have a housing shortage at all. We have the other thing and I know the government's working very hard to try to find solutions for affordable housing, but there's a big difference between a housing shortage and affordable housing. We need to build housing that is in price points that people can actually afford, and until then we're going to see prices come down, which honestly is not a bad thing, but there's a lot of ideas being thrown out there of of ways to kind of solve this, but none of these are actual solutions.

We simply just need prices to come down. And inventory is stacking, right? So, this was a record high for February for the amount of inventory that is considered stale, which means beyond the market for more than 60 days without going under contract. We're at 347 billion dollars of real estate that's just sitting there, and on the market.

And just in the last 13, 14 trading days, we had 7 trillion dollars come into the stock market. So, there is money on the sidelines, they're just not going after real estate at this point in the in the market cycle because they don't see it as an attractive asset class at this moment because they believe it's overpriced. We're seeing the same thing with hedge funds that are not out there going out there and purchasing a bunch of this stale inventory. They're actually trimming their portfolios themselves because the economics for them, even with their economies of of scale, don't make sense at this point at these prices, at these interest rates.

Obviously, this spooking investors, they're not doing as much multi-family. This is quarterly deliveries of multi-family, it's down 53% from the peak cycle, and it's and it's going to stay down at at these levels because we are overbuilt. And this is smart, I think the developers kind of got away from from themselves going up into 2024, and now it's starting to slow down. It makes sense also cuz it takes 3 to 5 years for folks to finish these projects and get them going.

So, they just overbuilt, they realized it, and then they cut back as they see the situation changing. And naturally, it's really hard to go after an asset class and put a lot of money into it when you see the rents going down every single month for the last 3 years, 2024, 2025, 2026 of obviously this massive run-up from '21 to '22, and then we saw it come right back down and now we're starting to adjust as we have this oversupply from overbuilding and the accidental landlords that are coming on getting frustrated you can't sell my house and they move to turn it into a rental. I'd love to hear from you if you're in the middle class, how are you feeling about the housing market? How are you feeling about the stock market?

What are you seeing on the ground in your market? As always you can subscribe to my Substack. I release it two times per week. I talk about things on there that I can't talk about here on YouTube.

I'd love to hear from you as well. If you need a top real estate agent in your market, I'm connected with the top people across the country. More than happy to get you in touch if you're buying, selling, you need a short sale, you're going after assumable mortgages. I'm here to be a resource to you.

I reply to every single email and I look forward to connecting with you soon. Thanks so much and I'll see you Friday for my live call at noon. See you later.