Short Sales Are Exploding. The Contagion Is Here w/ Melody Wright

So Melody, the market has been changing rapidly here on the ground. Are we headed towards another 2008 type of housing crisis going into the next few years? Sure. So, you know, I think I just want to contextualize some of this in terms of what happened in the last crisis.

You really had a little subprime bubble that burst, but it didn't bring down the financial system by itself. It was really about the collateral being pledged across the system and when you have an issue in liquidity like what we're seeing right now at Tricolor First Brands this what's brewing in the auto sect sector, but what's really brewing in the private credit markets. That's what ultimately will create the credit crisis that was 2008. From a housing market perspective, yes, we are seeing some very similar things.

They just have new names. And so for instance, like government subprime is a thing. We had FHA which as I'm sure you know gentlemen of course and your viewers probably do as well. But quickly this was a program initially meant for first time home buyers where very low down payment credit scores that could go as low as 580 with compensating factors things like this.

That market was about 7% last time. It has now doubled. It's around 13 to 14%. So it's a much bigger deal.

And so you kind of saw private and I think what's important people always talk about the banks, right? Well, what happened is the banks kind of scaled back from lending. They kind of got out of the game. And so these non-banks have taken over.

But most of the market is in some sort of government agency is government agency backed. You know, almost 85% of it. But you have a little of the 3% that is um what we call non-qualified mortgage or this private it's already around 12% delinquent. And so you're looking at about 15% of the market that's over 10% delinquent right now as it is.

But it's being masked by the larger books with Fannie and Freddie. So essentially what most people don't realize as well is that the actual foreclosure was not really driven by subprime. It was driven when the prime got in trouble after the credit crisis. The difference here is that even those prime books are not as firm as people think because credit scores were inflated, right?

And so that's a big component of these automated underwriting services. And what we're going to see pretty soon here and I think we're already seeing it John. I I've just looked at my client books for September. 30 plus delinquency increased significantly.

Industry wide we only have August numbers right now. Which they said increase, but they blamed it on the calendar which doesn't make any sense. Not if you know mortgage not if you know borrower behavior. So I know you asked a simple question, but there's you know, is it is it going to be like 2008?

I think it's important that we understand the differences and where the stress is going to occur. But in essence, I think it's going to be worse than 2008 for a variety of reasons. We've overbuilt. That's again.

And you know, the consumer is just kind of tapped out and we also have already had GFC style intervention in the housing market. That we have any delinquency right now is should be concerning to everyone. And as you know, those guardrails went on that FHA program October 1st. Um So this is you know, stop me when you if there's a thread you want to pull cuz it it's a very complicated picture.

But in essence, yes, we we've got a housing crisis brewing. Right. And I love that message and I see it too because I'm in real estate on the day-to-day on the ground. So what you're seeing at the high level we're seeing show up.

Though I'm seeing on websites like HousingWire and these other people, they're saying we're about to go on the largest bull run ever in history. What are they missing because it doesn't make sense to me why they're pushing this narrative. Do you have any commentary on why they think that the market's going to continue forever? No.

And you know, my original piece in HousingWire in January of 2023 I challenged the housing inventory um shortage narrative. Yeah. I was the only one of a group of people um and of course they didn't take me very seriously, but they were also very surprised when inventory started to grow. And now they're just there's a debate I did with Logan that I think everyone should from HousingWire should check out.

It was hosted by Eric Bosmajian. And you know, they they seem to believe that with dual income houses which we've had since the 70s by the way. Um It's somehow we're going to deal with this affordability crisis. The problem is we've got the lowest sales last year since 1995 and we've increased population by over 20%.

That doesn't And by the way, it looks as if we were also lending to the immigrants. I mean that that just came across X Twitter or something I've been wanting to get my hands on that data. So I mean it's just insanity for us to talk about how and then we're facing these large negative demographic trends. We're not having babies.

We're not replacement rate. The boomers and I think I saw this also in your yeah, in these slides. You know, 15.6 million will leave us between 2025 and 2035 over 25 million between 2035 and 2050. And so the demand is just not going to be there.

But what most people don't realize is that the housing market has been about speculation for a very long time probably since the late 80s and about investor purchases, you know, to do long-term rental or short-term rental. And it's not about first time home buyers lowest first time home buyers on record since they started tracking the 80s last year. So this market is all about housing speculation and I think that they largely missed that. Um Is that on purpose?

Are they missing the demographics on purpose? You know, I think it's in their vested interest to keep the narrative going and certainly the National Association of Realtors who you know, they've got the lockdown on all this data and it based on my deep dives very deep dives into that data. These are not real time numbers sales figures. These are actually modeled results.

And that model is very biased. And so what are they missing? I think they're just afraid that their paychecks going to go away. And they don't really care about Jane and Joe out there who are trying to find a home and I think you know, I was saying this to someone else earlier today is that even as an influencer on the very small scale that I'm on.

I take my job very seriously. I know that people listen to me and they make big decisions based on what I'm saying and that's terrifying. I don't think these guys are terrified at all. They don't care.

And so that's John I mean I really don't know the answer. Either they're not bright or they're doing it on purpose. Right. And of course they're likely being financed by homebuilders and mortgage lenders who need to push the narrative that the market's going to continue forever to try to convince the next buyer to get in at the highest price to fill them out.

And so there's a massive conflict of interest from people who are being paid to create data and charts to share a narrative just like most news sources which is why I think the majority of people now are going on YouTube. They're following you. They're following your Substack. They want to you know, talk with independent reporting sources that they trust more than the media because what they're seeing on the ground, right?

When they're driving around town and they see you know, 15 for sale signs in their neighborhood, but they see on HousingWire that we're about to go on a 25 year bull run. It like to them the common sense it just doesn't add up to them. However, I will ask you this Melody. There are regional differences.

Oh yeah. >> And I know that they point to the differences. Well, you know, the South is one area, the north is one area. Will will it eventually this kind of activity that we're seeing depressed is basically depressed here in Florida.

I can give you a bunch of examples. But will this type of effect that we're seeing in Florida happen in the northeast? Will it happen in these other markets across the country or are they completely insulated for other reasons? Like you say, you know, we hear all the time, you know, real estate is local and it absolutely is.

That's why I track 85 markets and each of them has a different set of problems. You know, so California did a lot of building in certain areas by the way, but couldn't do as much and say LA, but they lost 300,000 people. So you know, all of these things so the so right now what's happening is is just as you rightly point point out, you know, we've got this big outsize impact in Florida and Texas where they just went gangbusters building and you know, what I saw on the road still makes me nauseous when I think about it because you know that many of those subdivisions will have to be bulldozed. And that's somebody put money into that.

So it's going to be a lot of loss. Yeah. And so this this is I mean my favorite thing to do is to actually do the listings plus the Airbnb map cuz you can see that this is an infestation. It's an infestation.

That's like if you've ever studied disease and how it travels, that is that is what this is. So they have a very specific um set of issues. And by the way, they didn't have the the population growth that everybody thought. Um it was more a temporary short-term boom for all those people coming to build those houses, plus the supporting of that very part-time short-term uh kind of industry.

Cuz when the builders leave, so do all those adjacent services. But now you got to take the Midwest, okay? Um so, we've talked about the West. I mean, cuz many parts of the area they also built like crazy.

California just has to be one where they built like crazy in Riverside, but then in the big cities they lost a ton of their residents. Uh so, let's take the Midwest. Um this time last year people were still piling into the Midwest for speculation because they would watch analysts like me or Ivy Zelman uh saying things like, "Well, you know, the Midwest still has relatively cheap housing prices." And I've had this argument with investors on Twitter where they're like, "Well, it's so low compared to everywhere else." I'm like, "Yeah, the household median income is $30,000." Relative income. Like who who who?

And and often what happens, John, is it'll be like, "Oh, a data center's coming, you know, like a semiconductor plant. Uh we're going to have 3,000 jobs." Okay, I've tracked many of these projects. Most of them don't happen. If they do happen, it ends up being like 20 jobs.

Or it ends up being like in Phoenix where they had to hire people from Taiwan because there was nobody skilled enough to work there. Um or at least that's what they said. And so, these promised jobs never happen. And so, out in Ohio, there were some semiconductor plants that were going to happen.

And so, investors just went bananas buying all these things up, swooping all of the inventory off the market. Well, guess what? Just like in the South, just like in the West, the inventory started growing as people realized, "Oh, I can't sell this house for $100,000 more in the middle of nowhere, Ohio." Yep, that's right, buddy. You can't.

So, uh inventory is starting to grow non-seasonally there, far out pacing every other region. Um and you've got price cuts. You've got motivated distressed selling. Indianapolis, Kansas City, Cincinnati.

Uh prices are coming down. So, it's starting in the Midwest now as that inventory accumulates. The Northeast. The Northeast is old and they have the worst demographics.

They have the highest amount of unaffordability. And you take somewhere like Boston where because they weren't getting tax revenue from commercial real estate anymore cuz it's empty, uh they decided to tax their residences instead. And so, you know, as these folks kind of age out as too cuz of the demographic and here's where people get confused cuz often they'll be like, "Well, it's not that old there." Okay, well, here's the other problem. Look at your owner occupancy.

Um look at that rate because what happens in a lot of these big cities is you have investors that own rental properties and those could be institutional investors or mom and pop investors. And mom and pop investors are the biggest, but you have a whole bunch of people that own in the Northeast. Um a whole bunch of people are then, of course, renting, but those renters can't afford to purchase those homes. And so, as these boomers, as we talked about, who own the majority of the homes, have to sell these homes or as they pass, which I'm helping several people with inherited properties right now that are having a terrible time, then you're going to have more inventory.

So, all you really need to do is crack open one of these markets and look at those factors and you will see that the Northeast is also in for a world of hurt. And it really it comes down to demographics and affordability. I know that was a lot, but it's nowhere are you going to have one neighborhood that does better than others? Sure.

Sure. A lot of this has been on the back of what I'll call bezel, which is the people with the Porsches, the people with the Lamborghinis, the boats, all of this. That's all been bought on leverage, so don't be surprised when your neighbor, who you thought was super wealthy, the for sale sign goes up. Yeah, we're already seeing that across the board.

And nobody was actually truly wealthy, they just borrowed assets the entire time. >> And so, let's let's take into demographics because this is like a terrifying chart that just has been circulating around and it talks about the demographics for the next generation for homeownership. This is the US homeownership rate by birth decade. Look at what it was previously to where the chart seemed to be going for the 1990s and 2000s.

So, we're talking like Gen X, Gen Z, and my generation. I mean, people, you know, I'm 34 years old, the people I spend time with, they can't afford to have kids. They're opting to have just one kid. They don't need a larger house, but the people who are selling the houses right now here in Florida are the boomers that have 3,000 square foot houses.

They can't afford to send their kids to school. I mean, they're really struggling even with the dual income because the interest rates skyrocketed so quickly. And look at the 2000s. I mean, what what does this tell you about the future generation?

Like are these younger generations completely screwed because they're loaded up with debt? They can't afford a home that kind of acts as like a little piggy bank if they hold it long-term for 30 years and write it in and pay it off. What do you say to these younger generations who are completely priced out? Or are there is there nothing that they can do?

Firstly, I say I'm sorry. And and and because this is horrible and this is not what we want as a country and I think that we're seeing the results of this in increased violence all over the country. Several mass shootings over the weekend in the South. Uh people are hurting.

And so, this is this is a terrible thing and I apologize even though I I am was a victim as well, I apologize. And actually, my family was a very early victim during our last bout with inflation and I lost my home to foreclosure when I was nine. So, I get it. And and I want everyone to have shelter because it's it's one of our you know, it's Maslow's need.

So, uh you know, I do think there's hope because this cannot sustain. You cannot crush the backs of these younger generations like this. They will get angry. They will take to the streets like they're doing all over the world right now.

You're hearing about it all over the world, Gen Z protest. Because we're not the only place in this situation. Right. >> And so, things have to change.

And so, and I'm very much in the middle politically and I hate talking about it, but what I would encourage everybody to do is stop listening to what they say and look at what they're doing. And right now, they put the guardrails on this FHA program. Will they pull it back when things get too bad? Uh they might because nobody wants to be that out of favor and there's midterms around the corner.

But doing things like this are going to have real impacts. Uh cutting SNAP and Medicaid, like these things are going to have impacts. And so, watch what they're doing versus what they're saying. You know, I think we're probably gearing up for some builder bailout around affordable housing, but that's I mean, again a case of are they really that dumb that they think we don't have enough houses?

Or is it that that's the narrative, so that's the story and we're sticking to it and when we have to bail out the builders, that'll be the narrative. Um and we will do affordable building projects. The problem is I think once they get out there on the roads, they're going to see how much is already out there. So, I wouldn't be surprised if, for instance, the government gets in the buying uh the buying of subdivisions business and buying back from PE, actually all those homes they sold at the end of the last crisis.

But I say, "Hold on." And while you're waiting, don't make bad decisions. Uh YOLO is one of the worst diseases in our current society because they won't it feels as if the narrative is you'll never be able to afford anything, so just keep spinning. Well, why do they want you to keep spinning? Cuz consumption is 70% of our gross domestic product.

And so, they need you to keep spinning. They need you to get into debt. Um but you have options to vote with your dollars. When consumption is that big of a percent of our economy, your buying decisions make a difference.

And I think you're seeing that right now, John, where uh buyers are just being like, "You're crazy. I I mean, you're just absolutely crazy. I'm not paying that." I mean, the housing market has been frozen for almost 2 and 1/2 years now, really more. And because buyers are saying, "No, thank you.

I'm not going to do this." And so, continue to do that because that's the only way that sellers are going to understand. Now, everybody has a different life situation. I'm not I can't give everyone advice. And if you don't have to take on leverage and you can sustain a certain amount of loss, then you know, of course you consider this.

But most Americans are not in that boat. And people are afraid for their jobs. We've got layoffs increasing. And so, just know that you do have agency.

Don't spend all your money at Starbucks. You know, don't I mean, honestly, one Starbucks a day is one mortgage payment for a year. Like if you just didn't do that, that's and that's not insignificant. I know that a lot of people are like, "Well, yeah, but I'll never get there." You will.

It just takes work and just hold on while everybody else is making really bad decisions, hold on to your cash, let it grow, and then you'll be in a place when this market turns as it has to. The only other option is that wages go up and don't cause inflation. And that's I mean that's the only so which wage price spiral is exactly what everybody's terrified of. You know, that's why immigration was allowed because they would needed cheap labor to keep everything going post the last during our last crisis.

When we were shut down when we were locked down. Yeah, exactly. Well, I you know, I think that's great advice. You know, get as frugal as possible and you need to save.

If you're in these younger generations, you need to be really good at negotiating because you're not going to have a pension. You're not going to have social security. You're not going to have these social safety net kind of handout programs from the government most likely because we're in such a terrible fiscal situation. Uh and in the debt load of the US government, it's unlikely that you're going to get these benefits that the boomers are currently having because they're staying at home in their their houses.

They're getting checks delivered, you know, to them and it's a you're not going to have that. So you have to save otherwise you might be working your entire life past your 70s until you die. So if you don't make these changes now, it's it's going to be really painful, you know, work life for you unless you love to work which I don't know most people that I feel like they don't want to work their entire life. They would like to have some sort of golden years.

Mhm. Yeah, yeah. That's great advice and as you mentioned, we're going to have a lot of the older generation sadly pass away and then the younger generations come in and I know the stats show about 70% of those sellers of those properties that are inherited go to be sold. Mhm.

Now, all of that new inventory has to be absorbed by some sort of buyer and what we're seeing Melody locally, rents are down 15 to 20% just in the last 2 years because people are failing to sell their house or they're inheriting a house. There's someone buying it as a rental. It's coming on as a rental. And we just had like this rental stacking up left and right.

And I'll give you an example and I'd love your thoughts on it because we're trying to figure out how do we help these homeowners? There's a a young couple. They're in their 30s. They bought at 360 in a new construction community in 2022 and they have it listed for 318 now.

And the builder is selling them at 275 with rate buy downs to the 3%. They don't have any money. They put 20% down, well-to-do people and they have a mortgage of around like 298 or something like that. And the builder selling it for less with the incentives.

They have to move for work. What do these people do? And this is what we're talking about like the lock in effect. Like people are just getting locked in and then they look at trying to rent it, right?

Cuz that's their initial gut reaction. Hey, I need to rent this. They'd be underwater $800, $900 a month and they would lose their homestead and their insurance would go up because it's a rental property. So your taxes and insurance would go up the minute that you start renting it out.

So they're we're trying to help them and there seems to be no solution and we're seeing this nearly every day, one or two calls a day from our brokerage, from our agents. I'm in the situation, what do I do to help these people? Is there a solution or do they just have to bite the bullet and try to short sale it and and find a way out? Do they try to ride it out and just find a way to pay that $800, $900 a month but then they have the repairs on top of that.

What do you tell these people who are who are in these communities cuz that is where we're seeing the majority of the distress is around the new construction where it's completely over built. Well, John, this is why in 2023 I I've been pounding the table on this exact scenario. Every city I visit, we talk about this cuz this is exactly what's going to happen or they could turn it around and sell sell it to, you know, a short-term like a long-term rental company like American Homes for Rent or something like that. And suddenly you're next door to a whole bunch of renters when you thought you were going to be and you know what happens to those rental properties.

They degrade so quickly. I mean, I see some that are 6 months old, they look like they're 5 years old. So unfortun- I was just at a conference in Dallas a couple weeks ago and got to be in the room with a large or actually, yeah. One of these institutional investors where they're actually offloading properties and that's another thing that's going to happen in Atlanta and other places where they are they're big.

And and also in that conversation we talked about how short sales are exploding all over the country. And so here's what I would say, don't don't chase a a falling knife, right? Like you we don't know how low this is going to go. And so why would you basically add on $800 of expenses each month while home prices continue to probably decline.

Right. And and then you're ultimately way underwater. And also let's talk about quality of life. Yes, could you hire a project a property management company but then, you know, that's just another headache on top of it.

I know people that have long-term rentals. To me, you have to bite the bullet. You have to short sell it. Get out from under that debt and because that debt is going to be like an albatross around your neck.

It's going to cause personal problems. If you're married, money's one of the biggest things that people argue about and so I think you have to just get rid of it. I mean, it if you aren't in kind of a negative cash flow, you might could hold on to it for a little but that equity position you just talked about, I mean, my advice all day would be get just get out of it as fast as possible. Cut your losses.

Start over. Save. It's so unfortunate. I wish I could prevent it.

I mean, that's that's why I do all of this. Yeah, that's why I do it too. I feel like no one else is really talking about the actual consequences on the ground of what's happening to the day-to-day person and not only that, if they don't get rid of it, rents are still coming down. I mean, they're building phase two, phase three, phase four around the corner in these builders.

They're continuing to build which is just mind-boggling to me. They're building entire communities and then they're flipping them over to like American Homes for Rent, Invitation Homes, Progress Homes. They're just buying the entire community and these rentals haven't even come online yet. And so I just don't think real estate has long-term legs for appreciation at least in our area because you can build anywhere.

You can build them really affordably and people are looking for lower price everything. So they're going to move to to those areas and maybe if they're working from home half the week, it doesn't matter exactly where they live. They're fine with living outside of the city versus living inside the city. So there's a lot of different preferences there.

Now, I want to switch gears to the luxury market because we're starting to see some pretty interesting information come out on the luxury side which we always talk about Melody that perhaps the luxury folks are a little bit more insulated than the dual income workers and things like that. But recently data came out according to uh Redfin and that August low sales of luxury homes dropped to the lowest August levels. And this is like a big argument, right? Oh, we're in a unique area.

There's not a lot of inventory. There's nowhere left to build and these houses are still going to sell. It's not a problem. Meanwhile, the data is coming out.

It's kind of showing, you know, hey, we're going back to even worse than 2019 levels. What is going on here? Is the narrative >> that we're getting from the media just completely broken over and over again, right? We We have the housing shortage.

We're going to continue on this big bull run. Luxury is insulated. The north is insulated. It seems like all of these type of narratives are not reality when you look at the actual data.

And so what do you think of this chart? Well, I love it because it shows what I've been talking about. You can look in all of my 80 markets that luxury that's been sitting for a year or more. I mean, how many people do you know John that can afford a $49 million home?

Many, right? And so these are these are sitting all over the country. Think about California again. But they're everywhere because guess what?

People built these million dollar homes for spec without a buyer. I mean, I talked to several in 23, 24, I talked to several realtors turned, you know, developers or whatever with properties saying in Encinitas for 20 million, 30 I'm like, how do you I mean, how do you have the what's to build like that? To build something for spec like that. But you can see it now.

I believe I was looking at a recent chart from the University of Michigan consumer sentiment survey and even the super prime are coming down. Their sentiment is because guess what? They're at the end of the LPs in these multi-family deals that are imploding all across the country. They're the investors that bought some of this debt from Tricolor or First Brands or whatever.

These These people are also getting hurt right now. It's it's harder because, you know, what what what do we hear breaking news yesterday? Chase blew out earnings, right? Well, of course they didn't mention the provision for loan loss that also increased cuz they know what's coming.

They're a bank. They know how they're going to make money through the good times and the bad times, okay? They're they've been through this several times. And so the narrative is just completely false.

And it makes everybody think So it made all these developers think that we had a ton more rich people in this country or they thought they would be foreign buyers. But foreign buyers are also in their native countries are suffering. People talk a lot about Canada and how, you know, it's all about Trump and that's why they're not coming here. Well, it's also about what's going on in their economy, what's going on in their housing market.

And so foreign buyers, although it kicked up again a little bit this year, that's because it it went through the floor last year. And so this luxury is everywhere and it gives me Golden Coast vibes. If anybody can look at Long Island eat the Hamptons look like before the Great Depression and what it looks like, you know, now very different because you just have so much of this luxury spec out there and you do not have enough people with the money to buy it. So, yeah, it's all false narratives.

Yeah, and what happens Melly when the stock market cracks, right? Cuz I mean, we're it seems like we're in all-time highs for the stocks as well and the ratios there like some of the highest ratios we've ever seen in terms of the AI bubble and what happens when that market goes out? Won't that crush luxury as well? Oh, yeah, absolutely.

And I think you're probably already seeing So, I think very wealthy investors are a bit smarter or that at least they have some people that know a little bit more, which is why you've seen insider selling like at it just all over the place. And so, they've already kind of pulled back cuz they know April was a big warning sign to them. This recent drawdown was a warning sign to them. What it was for retail and certain gamblers in the market that know how to make money off of it was oh, buy the dip.

That's going to pay off. And again, unfortunately, retail will be the bag holders here. But yeah, I think it's already because of what people saw in April, it's already having an impact on the market. Now, the young and dumb are still out there thinking they're rich, but you know, boomers have been through the GFC and and they realize some of them, not all of them.

Uh but I think that yes, if this and here we should just say there's so much fraud in all of this. That's the other thing that I think is way worse. We had one Enron. Right?

I think we've got multiple at the moment doing like tricolor was doing double pledging, but then you have this round-tripping that is just inherent to AI and and and nobody seems to care, but it will matter. And so, I think to your point, one of the only reasons we haven't seen more significant price declines this year is that people look to the stock market and think, well, surely it can't be that bad. But I would just like to mention one of the reasons I got back into macro was because of what was happening in the stock market when the world was locked down. And I was like, this isn't right.

All these businesses are closing, there's bankruptcies, people can't afford their mortgage. And so, yes. And I would also like to remind people that, you know, New Century filed bankruptcy. They were the first kind of big company in 2007.

The stock market did not bottom until March of 2009. So, it takes time for these things to wash through the system. So, to your point that is just going to have a huge impact on housing. As but what you'll see there is it won't be motivated anymore.

It'll be distressed just fire selling left and right. Yeah, and I want to show you another chart cuz it kind of goes into this of what the sellers' mindsets are, right? If the stock market is fine, they can afford to pull their house off of the market and wait for a better time. But if the stock market starts to tank and they really do need to get out of their house, I expect there to be a ton of inventory to come back on.

So, we call this rage quitting or rage canceling here locally. We just termed it ourselves because we're seeing it every single day. The seller lists the house for 2 to 3 weeks, they get no showings cuz it's overpriced, it's completely outdated, they're unrealistic, they won't listen to the realtor. And I know there's a lot of media that says like, oh, like realtors try to push prices higher.

Guys, it's nonsense. It's supply and demand and the buyers won't pay the price and we don't have any control over the buyers in the market. They get to decide what they want to do. We help facilitate the transaction.

But this is the more withdrawals per year. This data comes from Compass. Withdrawn listings as a percentage of new listings. So, 42.3% which is much higher than prior years, which is crazy.

And we expect, you know, if the stock market does crack, something is going to cause it to go down. I mean, it's gone up what? Like 38% since March. Something unheard of.

It's crazy and the government seems to think we can continue to push growth and asset growth across the board and it's it seems to me like it's all artificial. If it's if it's government, it's not actual true value creation. But that's allowing these buyers these sellers to pull their properties off the market because they feel like they can wait it out. But I have a feeling that the majority of these withdrawn, if they really do need to sell, which people don't usually list their house unless they're really serious.

I mean, do you really want other strangers walking through your house, >> Exactly. Cleaning it every week, getting out of your putting your dog in and out? Like they're serious. They just want the price that they want.

And I think, you know, my advice to sellers now is like, you need to sell if you really need to sell. Do it now and be realistic about the price because as you said, it doesn't look better next year. Like there is not one Melly, is there one economic indicator that you follow other than maybe interest rates slowing down, but probably for the wrong reason cuz we're having issues with employment. Is there any other indicator other than interest rates that like is pointing to a better market next year that you're seeing out of all the data that you track?

No. Okay. I can't find >> And and even interest rates, like we don't know what the bond market's going to do. I mean it could it it is it has been very What's the word?

It it just it's refusing to act how everybody wants it to act. And then there's there's all kinds of levers. If this thing accelerates with China, right? They can stop buying the 10-year Treasury.

And they've already pulled back. Some say, oh, they're buying it through Cayman. That's probably true. Uh but they could pull that lever at any point and no matter what we do here, no matter what then we are going to be in a situation where that 10-year Treasury stays above 4%.

Now, we're waffling. I don't know, we might even be moving below four right now as we did for an hour after Fed after Powell cut rates. And then it went right back up to that four floor. Uh so, we don't know.

So, I don't even think rates are positive story. It's, you know, it's been the promise for the last 3 years, but it's not happening. And so, who did we are in an environment now where so many things could one little It's like a little little pinprick from China. Boom.

I don't see anything coming for housing, nor did I in uh in 2022 at the end of you know, I could tell we were at the end of this bubble or you know, the the run-up and that's when housing peaked. And then from there, I I said this to her I used to always do weekly lunch and learns, you know, where I would talk like this to the company and I said to everyone around me, I was like, who is coming to buy now? Like why do you think housing is going to right? >> Yeah.

And and by the end of that conversation, every one of them good got it. And they of course, we were all subject to the cheerleading that never stops and in the industry itself. But so, the fact that people can't get it means that there's something fishy going on, you know, because this is there's nothing coming for housing. What?

Unless they open the immigration again. I mean how politically palatable is that right now? So, yeah. Look at the Fed's balance sheet.

I mean, could the Fed go in and go purchase a bunch more of at mortgage-backed securities where they're already manipulating interest rates so low already? Do you see the Fed stepping in and starting to buy mortgage-backed securities to try to keep this propped up? Because I mean, there's going to be issues too. If the housing market really does crack the way that I see it playing, the boomers are going to lose the majority of their wealth right upon retirement.

That's a huge problem for them. So, like the government has to decide if they're going to bail out the boomers or they're going to let the market correct and let the next generation have a chance at building wealth. Right. So, the Fed bought MBS in 2009.

It didn't make a dang bit of difference. Okay? And by the way, in this last purchase operation, they rates got the lowest and then they started their way back up and then Fed was still buying. They bought 700 billion more and rates were going up the entire time.

Okay? Cuz that spread is not uh again, the bond market is in control, no matter what anybody says. Okay? And most recently, it was like, oh, if Fannie and Freddie go private, they can buy MBS.

Well, that would be a surefire way for them to die as organizations us having to come in as taxpayers again. So, I I think that people just don't understand there there's really no other cards left. I come we are moving toward a command and control economy where the much more likely income or outcome is that there's some sort of state program housing where they sell you the home. I mean, it's not even like So, the Fed I think I think most people understand that the Fed became irrelevant in September of 2024.

They really did. Now, where are they relevant? To your point exactly, these people are going to be retiring right as everything is going down. Well, guess what they might have to do?

They might have to sell their stocks. Right. Because and so, I mean, this whole thing is you can't look across a system and see something that's just standing out there shiny and is going to come in and save everybody. Every single one of these choices has real negative outcomes like what you're saying, and not just impacting the younger generation, impacting the boomers, too.

And I think that we're kind of we're out of options, and we've got to rinse out the speculation from the system. Housing has to become about shelter again. I'm looking forward to the day that housing is so boring, I don't have to talk about it anymore, and I can talk I can go write fiction novels or do something like that. Yeah, I I don't know if that'll ever happen.

It seems like it's the most manipulated thing. I've been studying it since 2009 myself, and it seems like it's just constantly being manipulated up and down through interest rates, through incentives for builders. Everything Every time the government gets involved with everything, it creates these unintended consequences that show up 20 years later, and there's a generation that pays the price for it, and another part and and there's a winner and a loser from these decisions that they make versus just letting the market be an actual free market. I feel like we'd be in a much better position >> Yeah.

In a free market. Like, what would real interest rates be if we didn't have all these mortgage-backed securities that were purchased from our government? What would it look like? Would it be 10 12% and prices would be 30 40% lower already, and we wouldn't have this affordability crisis that is causing so much issue, and then there would be less speculation because there would be less build-up of equity in these homes that people think is kind of phantom equity at this time at this point because until you sell, that's not real money.

On the first time. Cost to buy and sell, which people don't talk about enough, is incredibly high. I mean, you're paying um 6% going in, you're paying 6% going out, so you need to have this your house appreciate on top of the repairs more than 12%. And that's going to take at least generally in a normal market 5 years.

In a down market, I mean, it could take more than a decade or so. I think a lot of these people they think it's a great investment, but it's all about what you buy the asset for, and right now it's too high. It's too high, and I fear for my friends who are getting in, and they're getting tricked by the builders. And they're saying, "Oh, I'm going to get a 3% rate." And they're getting the affordability.

They'll never be able to sell that house because when they sell it, the next person will will have to get you know, they'll have a 6% rate instead of a 3% rate, so they're going to be locked in, or they're going to have to reduce the price by a couple hundred thousand dollars uh to make it competitive with where the new market's at. So, we're getting the word out. We're trying to educate the consumer on what their options are. And by the way, in a lot of areas because rents have been dropping, you can negotiate your rents and it's great >> while you wait this thing out and what this playing out.

Like, when are we going to start seeing the distress where the housing wire people can no longer ignore reality? They I mean, obviously, they shouldn't be ignoring it now, but it seems like this is pretty obvious that it's coming and it's headed this way. When do you think they will finally get it and it'll really start showing up in the data? Honestly, I didn't believe that we would need to get to foreclosures for this stuff to play out due to the increased cost, but the narrative has just been so strong, but I think by Q2 of 2026, we are going to have material foreclosures.

We're already up year over year. Don't ever be fooled by the month-over-month movement because um what happens in loss mitigation is somebody goes on a workout, they fail out, they get back on, they fail out again, they get back on, and so it's always this push and pull. You've got to look at the accumulation. And I believe Black Knight last month said we were foreclosures were up 17% year over year.

It's actually more than that. Black Knight does not have the number three largest specialty servicer on its platform. So, they can't give you foreclosure numbers. You know, Adam it does not have all of the information, either.

And so, I think though by Q2 2026, we're it's going to be clear, and we're going to have material foreclosures unless, you know, again, some other government intervention or and often the state AGs will also get involved cuz there's going to be all kinds of accusations like last time. Foreclosure's a dirty word Right. >> media, and I've already seen several articles that look like attempts to kind of smear that process again. But I can tell you, I was recently helping someone on a case, and I you know, what did happen uh So, Dodd-Frank got its teeth pulled with uh on the origination side when they removed that debt-to-income threshold.

However, on the servicing side, no teeth were pulled. It is so strict what you have to do that I was just hired someone wanted me to look at a case for them of wrongful foreclosure, and after 3 hours, I could point give them a hundred examples of how their clients knew exactly what was going on, even in hearing it in the the phone call. Uh and so, they're going to try that again. Uh it'll make it dirty.

So, there's going to be things that slow this down, but I do believe Q2 2026, and honestly, defaults are going to rise from here, no matter what calendar effect Black Knight thinks is causing the problem, which is just ludicrous, and they know it. They know it. Um so, uh yeah, I think barring anything else, that's when we're really going to understand the problem. And it'll be In many ways, they've already pivoted.

It's just been a soft pivot. You can watch them, and they're softly pivoting. They'll get there. Of course, there has to be some They'll get to blame it on the stock market, or they'll get to blame it on tariffs, or whatever, but this was this was always our path since the little boom began in 2020.

Yeah, exactly. And we're already seeing it show up, right? In autos and credit card delinquencies and all this kind of stuff. And so, the last shoe to drop, it seems like, is housing.

So, we kind of see the stress elsewhere for now, and kind of like when interest rates when the Fed raises interest rates, you're not going to see the impact for 6 to 8 months. It seems like, okay, we're seeing the car in the in the uh other delinquencies. Okay, we're not going to see housing for another 6 to 8 months. And of course, the FHA workout program changing and things like that.

So, all right, guys, Q2 of next year is when we need to revisit this conversation and see where things are at. I am in complete agreement with Melody and her prediction and her time frame because we're seeing it on the ground. I mean, in Florida, we're kind of seeing it I feel like early. Always.

Always. Highly speculative. I think about 35% of the purchases over the last 5 years were from speculators, right? The Invitation Homes, Progress Homes, all this kind of stuff.

They boosted the prices up so high, they priced out the local population. The local population hasn't been able to catch up in terms of wages and productivity, and have just completely just been priced out, and now there's no one really left. Like you said, who is the next buyer of these assets, and we're not sure. And we think the only way that the buyers really come back in is when prices come down to a point where it starts competing with what people can rent.

My models show a 31 to 42% decrease from October 2022, which is when it was the peak here locally in Florida. And we're already down 15% locally. I know a lot of people refuse to acknowledge the data Exactly what Yeah, I don't understand why people can't get to reality. I think they just rely their their income relies on them sharing this narrative that things are great, and they'll continue to move forward, and they don't have any standards, and they're scared that their income's drive drying up, and so they're willing to say whatever they need to say to get the sale.

I think that's the wrong way to do business. And but that's why we see a lot of people buying at probably, in my opinion, and I'd love to hear what your thoughts are before we hop here, is this the worst time to buy ever in history, or was it like 23 24, or is it right now? Yeah, I think probably starting July 2022, and maybe even earlier, was the worst time to buy in history. I mean, and honestly, what you're seeing in the mortgage vintages 21, 22, 23 are the ones Yes.

Um so, really, I I think the last good time was probably some maybe maybe in March of 2020, to be real honest with you. And maybe it was even 2019, but it is very bad, you know, um these past few years, and so I think this is definitely, if not the worst, it is a really bad time to buy, especially because of those demographics. Yeah, and I have a builder buddy who's like, "Well, it was only like 3 or 4 years that it was really a bad time to buy." And I was like, "Yes, but they were buying at double the rate, like nearly double the rate." It went from like 4 million home sales to like 7 million annual, and you had that for a couple of years, these elevated number of sales. So, it is like a lot of people.

You're talking, you know, 20 million purchases that are in this type of time frame that's really going to be painful. Um So, Melody, any final thoughts before we hop off here? Yeah, I'd like to share a couple of references. I think I've shared them with you before, but Bubble in the Sun, Swamp Peddlers, two great books to really talk about these cycles.

As well as as you mentioned interest rates and kind of what we've seen the last 40 years, which is not what it uh Since time immemorial, we've charged interest you before we could even write, and so earliest forms of writing show that It's called The Price of Time by uh Edward Chancellor. I recommend that to everyone because I think that we get we get locked in this recency bias, and we think things can't happen because they haven't happened in the last 40 years, but that's that's not time. So, those would be my recommendations. And finally, say no to uh debt slavery.

Leverage is a killer, like quite literally. If you heard what happened this last crypto drops, a young man killed himself in his Lamborghini. Like, these are real-world consequences, and you need to be careful out there. So, just say no to debt slavery right now, especially when we're in this kind of economic environment.

Yeah, and the gambling, too. There's like probably 10 million males day trading every single day and if they just And most of them lose like 92% of people lose it all. So, don't try to get this quick get-rich-quick stuff. Stay focused on the day-to-day, cut your expenses, be frugal, be really strategic on when you purchase, what you purchase.

And the good news is you can follow Melody and I'm sure when the time makes sense to purchase, you're going to be shouting it from the rooftops. I'm going to be shouting it from the rooftops. And both of us will probably be purchasing. So, we will keep you updated on what the market is doing and what we're doing and how we see things.

And of course, this isn't financial advice. You make your own decisions. However, we're going to share what we're doing and you can decide what you can do from there. But Melody, this has been fantastic.

Thank you for the advice as always. Thanks for getting the word out of what's going on. We need more people like you who are willing to share what's really going on on the ground and actually traveling around and seeing what is happening around the country because if you lived through Melody's eyes and saw what she sees and you see what I see when I walk out the door every single day. I see an apartment complex being built on every street corner, you would understand because you don't Sometimes you can't believe it until you see it.

And once you see it, you can't unsee all of these like fake communities that have no one in them. And it's coming and it's just a matter of time until it plays out as Melody said. So, thank you as always for for being willing to contribute to to everybody here. Well, thank you so much for inviting me and it has been great to meet and know you and get that local intel.

It's very important. So, thank you again for having me. Yep, thanks. And so, if you want to follow Melody, I do.

I subscribe to her Substack. Go to her Substack, subscribe and it's money very well spent. You're going to get inside tips of what she sees happening on the ground and she has access to data that a lot of people don't have access to. So, thank you again, Melody, and we'll see you next time.