Melody Wright: We're In An Insane Housing Bubble Fueled By Speculation That's Worse Than 2008
Summary
Market Outlook: Melody Wright emphasizes that the current housing market is in an "insane bubble" driven by speculation, worse than the 2008 crisis, with significant overbuilding and inflated home prices.
Housing Market Dynamics: The market is divided between existing and new homes, with new homes often priced lower due to incentives, while existing home sellers hold unrealistic price expectations.
Investor Influence: The housing market is heavily influenced by investors rather than first-time homebuyers, with a significant portion of transactions involving investment properties rather than primary residences.
Regulatory Changes: Upcoming changes in FHA loan modification programs and increased scrutiny on owner occupancy fraud could significantly impact the housing market, particularly affecting investors using these programs for short-term rentals.
Demographic Shifts: The aging baby boomer population is expected to release a significant number of homes into the market over the next few decades, potentially easing housing supply issues.
Economic Risks: Rising property taxes and insurance costs are increasing financial strain on homeowners, potentially leading to higher foreclosure rates as loan modification programs become more restrictive.
Investment Strategy: Wright advises patience for potential homebuyers, suggesting that waiting for market corrections could prevent financial stress and lead to more affordable housing opportunities in the future.
Future Projections: The housing market is expected to experience significant changes by 2026, with potential for meaningful foreclosures and price corrections as regulatory and economic pressures mount.
Transcript
People are so sick of hearing that you just need to wait a little bit longer cuz it has been prolonged by so much intervention both on, you know, that loan modification I was telling you about, the the boomers refusing to sell, believing their estimates, I should say, as well as, you know, kind of the the bank bailout and sort of around rate cuts. But I think fairly soon all of those narratives are kind of collapsing and and this is going to start uh escalating. >> Melody Wright, author of the M3 Melody Substack, it is so wonderful to welcome you back to the show. Great to see you as always, Melody. Really appreciate you taking the time. >> Thank you so much for having me. It's my pleasure, Julia. Well, this audience loves you and I loved having you on for your debut. Gosh, it would have been probably back in late April, May. I feel like we're still in the spring uh selling season, if you want to call it even selling season. Um >> or the not selling season this year. Yeah, >> exactly. And I really enjoyed the conversation because I have to say housing is something I'm really interested in. It's an area I don't know much about, but it comes up often on this show and this audience just loves loves loves having you on. So, it is an absolute treat. And since it's been a while, um, and we know housing is a critical component of the economy, let's let it let's start with the big picture as we always do, where we are today. Um, your outlook, the framework in which you are looking at the world today, how things are going, um, what you're seeing out there. And as you know, Melody, on this show, you can take all the time you need to set the table when it comes to that big picture view. >> Sure. So, you know, the summer was kind of quiet, as was the spring, which was not what everyone was hoping for. Um, you know, you saw that inventory buildup in the spring, and so you could tell there was a lot of motivated sellers who wanted to offload that inventory. Well, unfortunately, that just didn't happen. We had some of the lowest sales we've seen in almost 30 years. When you look at combined sales, it's really unbelievable actually because we've increased population since uh 2008 by like 21% yet we were having sales as low as or even lower than 2008 in those months. So it was a very disappointing selling season um on the existing home side. And that's I think Julia like for people who don't follow this like I do, it must be so confusing because you will think that you just heard about home prices and then you know two weeks later or a week late a few days you'll hear again. But the housing market is divided between the existing homes, think used homes and new homes. And one of the reasons I knew early on we were going to be in trouble is that we went and we built a whole bunch of new homes uh because we were all convinced about this inventory shortage and again we have a lack of affordable inventory. But that's a different thing than an actual housing shortage. And so what the builders did is they went out and they just built and built and built. And this is what I saw when I went on the road in 2023. And then I saw again when I go back every single time wherever there was some uh you know empty space they were building and it was ab I mean honestly between Austin and San Antonio right now it's just one big new build site. It's insane. And so they've overbuilt um and this is dragging onto the existing home market because what the the builders are doing is they're they're really um you know giving these incentives and buy downs and they're they're re they're they're they're emptying out the city sitters because people can't really afford in the in the city proper and so they're building out these excerbs and so people are being enticed out there with all of these different incentives and low prices. And so one of the most interesting things that we've seen um this summer, Julia, is that on average since 2012, new homes that median price is about $50,000 higher than existing homes. You now have an inverse relationship where uh new home median price just came in for July around I think 47,000 whereas existing home median price is around that 422,000 mark. And so what something I put on ex Twitter is like the effective price is actually even different. Like if you Lar who's a very large home builder in their earnings, they said that basically 13.3% of that price they're having to kick in to incentives. So, if you think about that, 50,000 bucks off that 400,000, you're looking at a median price of around 350,000 for a brand new home when existing homes are going for much more because uh sellers are just delusional. Um, and so, you know, the housing market is of course impacted by what we're seeing with unemployment, layoffs, things like that. But it's it's impacted even it's more sensitive to what's happening right now, Julia, because the housing market is no longer about housing for you and me, as we know, uh, first-time home buyers were the lowest on record since they started tracking in the 80s last year. That just tells you that this housing market is about investment. And then quite frankly that started in the late 90s. Um you can go look at historical schedules and see how you know every time we got into trouble they tried to use housing as a way to juice the economy. We saw that you know um in the '9s in the late 90s early 2000s and again recently. The problem is they weren't really uh building for you and me are the people that would like to buy a home. They were building for investment or for the boomers that had their second, third, fourth properties. Um, but everybody, so essentially what happened at the end of the last crisis, and I think you and I talked about this, is Wall Street came in at the behest of the government agencies to like to buy up all that foreclosure property. And then we had every television show out there, HGTV, Fix and Flip, and everybody thought, well, I, you know, the institutions are doing it. I'm going to do it. And so people started buying up these houses to flip them and then rent them out because people couldn't afford homes anymore. and they saw rent prices kind of skyrocketing and that looked like a good investment. Well, here comes COVID and then everybody gets told by their bank, well, hey, you know what? You really should pivot to a short-term rental because instead of getting $1,500 a month, you can get $10,000 if you do a short-term rental. Now, people didn't think, well, wait, I'm 20 miles out of Austin. Am I really going to get $600 a night? They're, you know, no, the answer is absolutely not. But this is what kind of the non-banks told folks is like just come and grab them. So anyway, we're in a market right now that is um is going to be way more sensitive because it's not about you and me owning a home. Uh it's about investors who can no longer pencil u that investment and because they're not cash flowing because property taxes and insurance have gone through the roof and they can no longer get those cheap borrowings. And so it doesn't make economic sense. And so in those markets where you have a lot of short-term rentals, that's where the trouble started. I would say the smoke um but it's building and building. And so what 2025 is, Julia, is um for 2023 and 2024 was just a frozen lake. I mean that's it was just frozen. >> But what's with a little bit of motivation at the end of 2024? Uh but now we are we are in motivation that's turning to distress. And you're seeing this as well with foreclosure starts. uh increasing ex like 30% of course from very low levels but this has a impact on the margin when someone has to turn around and they don't want that foreclosure on their credit and so they start slashing prices and this is what I'm seeing in client books and so um where we are it's been kind of quiet this summer uh but in October this is and I'm sorry this is taking so long but I'll finish right here but in October um the FHA which this is a program that was meant for firsttime home buyers. That's not it's gone completely off the rails. A lot of investors use this program even though they're not supposed to. And this is you're hearing a lot about this in the news right now. Owner occupancy fraud. Um basically they are using the FHA program which is supposed to be for people who have trouble getting a loan uh and can't come up with that down payment to do these short-term rentals. But in what happened last year is the Biden administration put in a very aggressive loan modification program where people could go back over and over again when they got behind. Well, that um that program is effectively ending at the end of se September and October 1. You will still be able to get a workout, but you will be limited to one every two years. As well as if you have delinquent student loans, you will not be eligible. And this is so critical for our millennials, even our poor Gen Xers and our Gen Z. Um I'm, you know, I had student loans, so you know, I know. Um but this is this is going to cause a lot of trouble as well as they're putting on some guard rails that you have to make a payment for 3 months because what was happening is someone would come and say, "Hey, I haven't been able to pay for 3 months." They say, "Okay, we'll take care of it. We'll put it at the back of the loan in a non-interest bearing lean. you can pay it off when you sell your home or pay off your mortgage. And then they wouldn't pay for three more months and then they would come back and do it again. And then then and that just kept going and going. And so now that that is over, things are about to get very interesting in housing. >> Wow. And that that what you were referencing there, that's the owner occupancy fraud, right? Well, so so I said too much. So no, you can say as much as you want on the show. I just want to make Okay. So that's different. That's the student loan delinquencies. >> Yeah. So, so FHA was a program that was meant for first-time home buyers, but what happened is investors use they used it back during the GFC, too, because you only have to put down like 3 and a half%. You don't have to have a great credit score. And I think there's been a lot of fraud that's been happening with loan officers telling people, hey, you really don't even have to pay this mortgage. Like, you won't have to pay it for years because you can keep getting these workouts. And so the investors were using those FHA programs and now what's going to and and they were saying, "Okay, I'm going to own or occupy this. This is going to be my primary residence." But in fact, they were actually going to rent it out either for a long-term rental or a short-term rental. >> And now that teal is getting closed by October. >> Interesting. And I I think that was highlighted, wasn't that highlighted in like a study from the Philly Fed? Maybe. >> That's correct. You're absolutely right. So questioning how prevalent do you think this issue is and if that's going to get curbed or what kind of risk does that pose to like mortgages or something? I don't know like what do you think is there a risk there then or what's >> Oh 100% you're you're right on the money. So um how prevalent well the Philly Fed themselves what they came out that paper came out in January of 2023. I wish that our Fed read the things that it published. Um, and it said that, you know, mortgage fraud did not stop after the GFC. And in fact, anytime investors are involved, um, there's about a 30% chance it's fraud. 30%. 30%. I think based on what I've seen, Julia, it's more like 40 to 50% if not more. And now what you're seeing played out politically, and I don't like to talk about politics, but this is actually quite funny. I mean, it sorry, funny is probably not the right word. Ironic that they're using mortgage fraud to play political. And by the way, everybody does it. They do it on the right, they do it on the left. Um, but this is what's happening with uh the president, you know, firing Lisa Cook. He's accusing her of occupancy fraud on her mortgage because she took out two uh loans and said she was a primary. I don't know the facts of this case. However, PY has just created a tip line for this and this could be very impactful if they prosecuted this, Julia. They're very aware of it. They're very aware, but historically speaking, they haven't been motivated to do anything about it. Um, as well as it's been difficult to prove it because mortgage technology is from 1968, 1972. Like, it is so old you wouldn't believe it. If you walk into a bank today, you'll see blue and black screens. No lie. And but now that we have you know kind of more of the uh technocracy uh participating in our government they could quickly find and identify this. The problem is Julia is so rampant. um this could uh be a serious risk to mortgage back securities and and and sort of more on the upfront in terms of people having an appetite for them because the risk it it's a very complicated thing but if you get caught doing something like this the person who kind of originated that loan has to buy it back after selling it and so this so you're these this becomes a way riskier prospect which means NBS won't be priced um you know at uh the optimal price, put it that way. So, yes, a lot of risk here. This is all kind of breaking news. Who knows? I have a feeling, you know, this is the political play of the day and it's likely we won't see a ton of systemic change. However, um these guardrails in October are going to have a very big impact uh to the mortgage market if they don't extend the program, which I have a feeling once we get to um true distress where you're there's no question about delinquency and things like that that they'll probably extend the program. But that's okay. The dam I mean it's okay for those of us who want to see home prices correct because the damage has already been done. Gold prices have been breaking all-time highs this year, but price appreciation isn't the only way to profit from owning gold. You can earn a yield on gold paid in gold without selling your gold or silver. Unlike dollar yields that can be slashed or even go negative, a yield on gold paid in gold means more ounces in your account every month, not paper. Monetary Metals is revolutionizing the way people invest in gold and silver. Instead of paying to own the metal, now you can get paid to own it. Right now, there are opportunities for you to earn 4% on gold, paid in gold in their marketplace. The interest you earn is paid in ounces of physical gold or silver, which you get in addition to any price appreciation that comes from gold and silver during the year. The question is this, why earn in dollars when you can earn in gold? Join thousands of investors who are earning a yield in physical gold and silver every month with monetary medals. Visit monetary-medals.com/julia to learn more. Okay, I want to go back to the state of the housing market real quick. You said something about the lowest record, lowest on record since the 80s. Was that sellers or buyers? Like what was that again? >> First time home buyers. >> First time home buyers. Okay. I'm 37. I want to buy my first home. Um my husband and I have been talking about, you know, I do. >> And I'm like, I don't want to be a sucker either. And I like to jog in the same neighborhood like every day. And I've noticed the same homes. There's about nine of them and they're they've just been sitting there. They're beautiful. They're gorgeous. Like, but nobody's buying them. And it's like the primo neighborhood. It would be like my dream neighborhood. There's one like entry level one there. That one's not even moving. The one like the ugliest the ugliest house in like the best neighborhood. Even that one's not moving. But also, when I look at like the new builds, they're not appealing to me. They kind of feel this is terrible to say. I'm sorry. I don't want to offend anybody, but they kind of feel a little cookie cutter, not quality. So, I'm definitely more like I want an older home camp, but at the same time, I don't want to pay a ridiculous price cuz I know they got inflated over the last few years. So, what's your kind of outlook on housing? Maybe is there some hope for firsttime home buyers or aspiring ones at some point? Will these prices come down? I've had some guests who say they're never coming back down. Yeah, that's, you know, there there are a lot of people and I understand that position. I understand why they feel that way, but it's usually because they're missing the supply story and the demographics. And our demographics are abysmal. You know, we're not uh replacing uh we're not at replacement rate. And so ultimately, uh the Harvard's done some really good studies about this that all of the housing bulls ignore about what kind of demand is out there from our demographic growth. Um and it it doesn't look good. And so as those baby boomers age out and you know either move into nursing homes or things like that, we know that 15.6 million will leave us between 2025 and 2035 and almost 50 million from 2035 to 2050. And they own the majority of the homes. And so we're already seeing it. This is what's so funny about our media, Julia, is that the inventory is there. It could be caught up in probate. uh that's when someone dies and the heirs have to figure out what they're going to do with that home. Um but the in the vacant inventory is there and so once people come to finally understand we don't have a housing shortage which I think you know if our immigration policy stays conservative um and in in fact if we see an exodus of any sort this is going to become obvious very quickly. Yes, there is hope and I believe and I meant to start tracking your city and I was going to do that last time, but I will do that for you because I I I'm invested now, Julia. I'll have to >> I'm going to take pictures and I'll show you the neighborhood that I like to drive. >> Well, I'm invested in your home buying journey now, too, because um and you will start to see deals and there's some really good uh there's a software out there that I like to use. I'm they don't pay me. It's just called Property Radar. And I bet uh if you give me some of those addresses, I'll be able to look them up and tell you the real deal, maybe it's a divorce, maybe it's caught up in probate, maybe there's an owner's lean on it, maybe they're in bankrupt. There's all kind because the housing market moves so slowly. There's all kinds of things that could catch this up and then they'll kind of, you know, it's the old gradually then suddenly. Um, I believe, you know, we saw suddenly in terms of inventory last at the beginning last end of last year, beginning of this year. I think we're going to see that again coming into next spring. But yes, there's hope. Um, and I, you know, we just have to give it a little bit more time. This could be a multi-year correction, but honestly, I think someone probably, you're kind of, I would consider in the Midwest, right? Cuz you're in St. Louis. >> No, I'm in North Carolina. I'm in Raleigh. North. Okay. That's right. but a very desirable city too. >> North Carolina is turning right now as we speak. Um the entire state and so there is hope for you and there's and and every state's turning a little bit at a different speed. This is how it always goes. Florida, Texas started the party. California is now joining in force and we're starting to see the Airbnb uh northeast towns um and places like Westchester County are growing inventory and they're tipping over right now. And then the Midwest will probably be the last one to join although it could be a competition between the Midwest and the Northeast. Um but yes, there's hope and timing will depend on your area. But, you know, I'd say and people are so sick of hearing that you just need to wait a little bit longer cuz it has been prolonged by so much intervention both on, you know, that loan modification. I was telling you about the the boomers refusing to sell, believing their estimates, I should say, as well as, you know, kind of the the bank bailout and sort of around rate cuts. But I think fairly soon all of those narratives are kind of collapsing and and this is going to start uh escalating. Yeah, I can imagine it could probably be a little emotional too, like if you look at your Z estimate and you see what your house is because it it probably gives you this perception of like wealth that maybe it's a little higher than you think or I don't know like um there's a lot of asset price inflation and it's not necessarily >> I call it the zest effect because it's the wealth effect, you know, it's that the wealth effect that if you think that your house is worth a lot, you're going to spend more or at least that's what >> prosperous. Yeah. Exactly. That's what they hope anyway. But I call it now the zest effect because everyone is wedded to their zest. And you're I mean Julia, there is nothing more emotional than housing. Like there's And this was something when I first started on X Twitter that I realized very quickly because people were very passionate about it and it's very emotional. >> Yeah, we have a lot of boomers who watch this show and I love my boomers. So I'm not I'm not going against them. I love my boomers. Um they actually are the biggest percentage of my audience is boomers followed by Gen X and so I love them. Um I want to own a home too. Um at some point do you I think last time we talked about this. Is it fair to say we are in a bubble? >> Oh yes. We are we are in an insane bubble that has been fueled by speculation um that went on steroids after the GFC. >> Do you think it's worse? >> Oh, I do. I I don't think that ever fully played out because um because of that rescue from Wall Street and what a lot of people say, well, you know, well then Black Rockck's just going to come in or Blackstone and buy up all the houses again. The only way that's going to happen is uh if price is correct, cuz the problem right now, their net sellers in mo in those cities where they have a large presence because their property taxes and insurance make it cost prohibitive. And so they're doing things like in places like Atlanta and San Antonio, they're slashing prices. So the only way it makes sense for them is not only do you need cheap borrowings or cheap funding, you have to have those h home prices much much lower because that's the only way and insurance. So, I was I was on site at a big three um non-bank originator and serer last week and they told me over their book they looked at their whole you know uh 4 million loans and they said from 2020 to 2025 insurance had increased by 50%. and they did kind of a study and said,"What is the tipping point for someone when their escrow goes up?" And escrow is where your bank pays your taxes and insurance for you. And so what happens is even if you haven't put the money in through your payment, that bank or non-bank has to pay it out for you. Um, so they they care a lot about this. Yeah. Like what's the tipping point um for to put someone into delinquency um when their escrow goes up? Because when your escrow goes up, your payment changes. So let's say your taxes go up and your insurance goes up, you're none the wiser. You're just paying your mortgage payment and then suddenly you get a letter in the mail that says, "FYI, your loan payment is now $500 more a month." I mean, I can't think of anything more distressing to get in the mail, right? That's what's happening. And you know, North Carolina before Helen um they were talking about raising insurance, home insurance by 40% before Helen. >> 40% before. Wow. >> 40 before. So, so this is what's And so the serer said actually, you know, right around 9% is the tipping point. I have seen escrow notices go out far exceeding that 9% because of the increased taxes and insurance. And so this is tipping people into delinquency and it has been since basically 20 late 22 23. But you've had these aggressive loan modification programs that have kind of been catching them before they go over the dam. But the buildup behind the dam is so big come October 1st, we're going to start to see them coming over that dam. >> So we really need to be paying attention for October then. Um >> yeah, it'll take some time. Uh but but you know by Q1 to Q2 of 2026 uh our foreclosures will be meaningful. >> Yeah. So is it fair to say that the spring and summer selling seasons were just abysmal? Like how would you characterize it? Like what would be your word? >> I I don't there they were so bad it's hard to comprehend because again we've increased population. How could we be having sales as low uh like the lowest in 30 years? I don't I mean, how's that even possible? And so, they were they were really bad. >> So, and those are like the most important seasons for selling because now we're getting into fall's going to be we're at the tail end of summer. Fall's going to be here before we know it. So, what does that kind of set us up for then? >> So, this is very interesting uh where we are. And so, you know, history does not repeat. But what's fascinating is we've been tracking along 2008 in terms of uh price gains and not gains or deceleration. So what happens you get your seasonal price peak in June uh for the existing homes because that's when everybody's buying selling and then it just starts coming down. You see this every year. Uh you saw prices increase in 2007, prices increase in 2008, like during that selling season, but on the back half, you can come down very quickly because people are the people that are listed are pretty desperate. And so what we could see from here, Julia, is a very um ex uh accelerated uh deceleration because uh this is seasonally when price start to go down. We're already seeing um you know yesterday K Schiller came out with its seasonally adjusted series saying that for I think the third or fourth month prices are down month over month. You don't see that in the selling season. Again in 2007208 that didn't really happen. And so this is kind of a big deal. Um and the end of the year could get very interesting and we could end up at the end of the year with year-over-year uh price significant price declines. And so, you know, it just kind of depends on uh I was really kind of hoping we'd see lower rates at this point because last year we got a bit lower than where we are right now and you saw a ton of inventory coming to market again because with in the seasonal downturn like which is what we're in right now, people pull their inventory because they weren't able to sell. They're frustrated. They don't, you know, they're just like I'll get it in the spring again. Um, but October is when the Florida, Arizona, kind of those sunb belt states, that's when their season starts or the snowbird season. So, it's going to be very interesting. Again, that's why this fall, I'm saying, is going to be very telling about our speed uh in terms of this housing market correction. >> I will have to get you back on in the fall and October. We have to discuss this. Let me ask you this because one of the things I've learned from our conversations is like >> mortgage rates are influenced by the bond market rather than the Fed directly. Um so we have the Fed meeting coming up in a couple of weeks. What impact do you anticipate from >> I don't even want to say it's they're probably going to cut. I think most people think they're going to cut. Um but what for I'll say potential rate cut in September. What kind of impact do you anticipate that could have on home buyers and the overall housing sector if any? It's it's it's the question, right? I mean, last year what happened is you saw rates come down in anticipation of that rate cut and then they just took off uh just kind of like they gave the finger to the Fed. Um right now the bond market has been staying very steady uh where it is. Um I was hope I mean I was hoping we would repeat history of last year which everybody was front running kind of that Fed rate cut but we're not. we're we're sticking pretty in range here. Um so I don't think it's going to have an impact uh if they cut. Um now it could be that the bond market's kind of sitting there going uh let's let's let's see what you really do. You know, let's see what's really going to happen before it kind of makes its move. But it's so dynamic and there's so many influences. Um, you know, for instance, back in April when uh things really got hairy, you did not have foreign demand for that 10-year Treasury, which really caused a lot of trouble. If we're in a state of distress, all kinds of things go people are they're they're having to do whatever it takes to support oftent times their currency or things like that. And so, it's a very complicated bond market. So, I just kind of watch it as it is. And um right now it's staying pretty steady. So, >> um, Melody, I always enjoy our conversations. I love having you on the show. I can't wait to get you back on in October because I think we're going to have some important updates. Let's, um, before we let you go, let's let folks know how they can support your work. I'm a paid subscriber to M3 uh, Melody on Substack, but I would love for you to share more where they can find you on social. Any parting thoughts that you'd like to leave this audience? The floor is all yours. >> Okay, sure. You can find um my Substack at M3_Melody Substack, my YouTube M3 Melody YouTube and on X Twitter at M3_Melody. Um just final words. Um I know that we all get emotional about housing. Uh I mean it is shelter. It also often is a marker of where we are in our lives or at least we take it that way. Uh but when we get in over our skis, uh it causes all kind of stressors that really impact our relationships and our quality of life and it's not worth it. And I know that renting is very annoying and you want to feel like that home is yours. But honestly, in this environment, property taxes are so high. It's what many people are saying it's like a mortgage payment. And so we need to let all of this malinvestment get out of the system. and then it will be, you know, I think those first-time home buyers and folks will be able to afford homes again. And so it takes patience and it takes being logical over emotion. Um, but you know, I say just hold on and if nothing else, you know, just prevent that stress that could is could really destroy, you know, relationships. So Melody Wright, thank you so much for being so generous with your time, all of your knowledge, helping us all learn and get better. I always always enjoy your appearances on the program and I look forward to many more. Really appreciate you. Have a wonderful rest of your day and week. Thank you again, Melody. >> You too.
Melody Wright: We're In An Insane Housing Bubble Fueled By Speculation That's Worse Than 2008
Summary
Transcript
People are so sick of hearing that you just need to wait a little bit longer cuz it has been prolonged by so much intervention both on, you know, that loan modification I was telling you about, the the boomers refusing to sell, believing their estimates, I should say, as well as, you know, kind of the the bank bailout and sort of around rate cuts. But I think fairly soon all of those narratives are kind of collapsing and and this is going to start uh escalating. >> Melody Wright, author of the M3 Melody Substack, it is so wonderful to welcome you back to the show. Great to see you as always, Melody. Really appreciate you taking the time. >> Thank you so much for having me. It's my pleasure, Julia. Well, this audience loves you and I loved having you on for your debut. Gosh, it would have been probably back in late April, May. I feel like we're still in the spring uh selling season, if you want to call it even selling season. Um >> or the not selling season this year. Yeah, >> exactly. And I really enjoyed the conversation because I have to say housing is something I'm really interested in. It's an area I don't know much about, but it comes up often on this show and this audience just loves loves loves having you on. So, it is an absolute treat. And since it's been a while, um, and we know housing is a critical component of the economy, let's let it let's start with the big picture as we always do, where we are today. Um, your outlook, the framework in which you are looking at the world today, how things are going, um, what you're seeing out there. And as you know, Melody, on this show, you can take all the time you need to set the table when it comes to that big picture view. >> Sure. So, you know, the summer was kind of quiet, as was the spring, which was not what everyone was hoping for. Um, you know, you saw that inventory buildup in the spring, and so you could tell there was a lot of motivated sellers who wanted to offload that inventory. Well, unfortunately, that just didn't happen. We had some of the lowest sales we've seen in almost 30 years. When you look at combined sales, it's really unbelievable actually because we've increased population since uh 2008 by like 21% yet we were having sales as low as or even lower than 2008 in those months. So it was a very disappointing selling season um on the existing home side. And that's I think Julia like for people who don't follow this like I do, it must be so confusing because you will think that you just heard about home prices and then you know two weeks later or a week late a few days you'll hear again. But the housing market is divided between the existing homes, think used homes and new homes. And one of the reasons I knew early on we were going to be in trouble is that we went and we built a whole bunch of new homes uh because we were all convinced about this inventory shortage and again we have a lack of affordable inventory. But that's a different thing than an actual housing shortage. And so what the builders did is they went out and they just built and built and built. And this is what I saw when I went on the road in 2023. And then I saw again when I go back every single time wherever there was some uh you know empty space they were building and it was ab I mean honestly between Austin and San Antonio right now it's just one big new build site. It's insane. And so they've overbuilt um and this is dragging onto the existing home market because what the the builders are doing is they're they're really um you know giving these incentives and buy downs and they're they're re they're they're they're emptying out the city sitters because people can't really afford in the in the city proper and so they're building out these excerbs and so people are being enticed out there with all of these different incentives and low prices. And so one of the most interesting things that we've seen um this summer, Julia, is that on average since 2012, new homes that median price is about $50,000 higher than existing homes. You now have an inverse relationship where uh new home median price just came in for July around I think 47,000 whereas existing home median price is around that 422,000 mark. And so what something I put on ex Twitter is like the effective price is actually even different. Like if you Lar who's a very large home builder in their earnings, they said that basically 13.3% of that price they're having to kick in to incentives. So, if you think about that, 50,000 bucks off that 400,000, you're looking at a median price of around 350,000 for a brand new home when existing homes are going for much more because uh sellers are just delusional. Um, and so, you know, the housing market is of course impacted by what we're seeing with unemployment, layoffs, things like that. But it's it's impacted even it's more sensitive to what's happening right now, Julia, because the housing market is no longer about housing for you and me, as we know, uh, first-time home buyers were the lowest on record since they started tracking in the 80s last year. That just tells you that this housing market is about investment. And then quite frankly that started in the late 90s. Um you can go look at historical schedules and see how you know every time we got into trouble they tried to use housing as a way to juice the economy. We saw that you know um in the '9s in the late 90s early 2000s and again recently. The problem is they weren't really uh building for you and me are the people that would like to buy a home. They were building for investment or for the boomers that had their second, third, fourth properties. Um, but everybody, so essentially what happened at the end of the last crisis, and I think you and I talked about this, is Wall Street came in at the behest of the government agencies to like to buy up all that foreclosure property. And then we had every television show out there, HGTV, Fix and Flip, and everybody thought, well, I, you know, the institutions are doing it. I'm going to do it. And so people started buying up these houses to flip them and then rent them out because people couldn't afford homes anymore. and they saw rent prices kind of skyrocketing and that looked like a good investment. Well, here comes COVID and then everybody gets told by their bank, well, hey, you know what? You really should pivot to a short-term rental because instead of getting $1,500 a month, you can get $10,000 if you do a short-term rental. Now, people didn't think, well, wait, I'm 20 miles out of Austin. Am I really going to get $600 a night? They're, you know, no, the answer is absolutely not. But this is what kind of the non-banks told folks is like just come and grab them. So anyway, we're in a market right now that is um is going to be way more sensitive because it's not about you and me owning a home. Uh it's about investors who can no longer pencil u that investment and because they're not cash flowing because property taxes and insurance have gone through the roof and they can no longer get those cheap borrowings. And so it doesn't make economic sense. And so in those markets where you have a lot of short-term rentals, that's where the trouble started. I would say the smoke um but it's building and building. And so what 2025 is, Julia, is um for 2023 and 2024 was just a frozen lake. I mean that's it was just frozen. >> But what's with a little bit of motivation at the end of 2024? Uh but now we are we are in motivation that's turning to distress. And you're seeing this as well with foreclosure starts. uh increasing ex like 30% of course from very low levels but this has a impact on the margin when someone has to turn around and they don't want that foreclosure on their credit and so they start slashing prices and this is what I'm seeing in client books and so um where we are it's been kind of quiet this summer uh but in October this is and I'm sorry this is taking so long but I'll finish right here but in October um the FHA which this is a program that was meant for firsttime home buyers. That's not it's gone completely off the rails. A lot of investors use this program even though they're not supposed to. And this is you're hearing a lot about this in the news right now. Owner occupancy fraud. Um basically they are using the FHA program which is supposed to be for people who have trouble getting a loan uh and can't come up with that down payment to do these short-term rentals. But in what happened last year is the Biden administration put in a very aggressive loan modification program where people could go back over and over again when they got behind. Well, that um that program is effectively ending at the end of se September and October 1. You will still be able to get a workout, but you will be limited to one every two years. As well as if you have delinquent student loans, you will not be eligible. And this is so critical for our millennials, even our poor Gen Xers and our Gen Z. Um I'm, you know, I had student loans, so you know, I know. Um but this is this is going to cause a lot of trouble as well as they're putting on some guard rails that you have to make a payment for 3 months because what was happening is someone would come and say, "Hey, I haven't been able to pay for 3 months." They say, "Okay, we'll take care of it. We'll put it at the back of the loan in a non-interest bearing lean. you can pay it off when you sell your home or pay off your mortgage. And then they wouldn't pay for three more months and then they would come back and do it again. And then then and that just kept going and going. And so now that that is over, things are about to get very interesting in housing. >> Wow. And that that what you were referencing there, that's the owner occupancy fraud, right? Well, so so I said too much. So no, you can say as much as you want on the show. I just want to make Okay. So that's different. That's the student loan delinquencies. >> Yeah. So, so FHA was a program that was meant for first-time home buyers, but what happened is investors use they used it back during the GFC, too, because you only have to put down like 3 and a half%. You don't have to have a great credit score. And I think there's been a lot of fraud that's been happening with loan officers telling people, hey, you really don't even have to pay this mortgage. Like, you won't have to pay it for years because you can keep getting these workouts. And so the investors were using those FHA programs and now what's going to and and they were saying, "Okay, I'm going to own or occupy this. This is going to be my primary residence." But in fact, they were actually going to rent it out either for a long-term rental or a short-term rental. >> And now that teal is getting closed by October. >> Interesting. And I I think that was highlighted, wasn't that highlighted in like a study from the Philly Fed? Maybe. >> That's correct. You're absolutely right. So questioning how prevalent do you think this issue is and if that's going to get curbed or what kind of risk does that pose to like mortgages or something? I don't know like what do you think is there a risk there then or what's >> Oh 100% you're you're right on the money. So um how prevalent well the Philly Fed themselves what they came out that paper came out in January of 2023. I wish that our Fed read the things that it published. Um, and it said that, you know, mortgage fraud did not stop after the GFC. And in fact, anytime investors are involved, um, there's about a 30% chance it's fraud. 30%. 30%. I think based on what I've seen, Julia, it's more like 40 to 50% if not more. And now what you're seeing played out politically, and I don't like to talk about politics, but this is actually quite funny. I mean, it sorry, funny is probably not the right word. Ironic that they're using mortgage fraud to play political. And by the way, everybody does it. They do it on the right, they do it on the left. Um, but this is what's happening with uh the president, you know, firing Lisa Cook. He's accusing her of occupancy fraud on her mortgage because she took out two uh loans and said she was a primary. I don't know the facts of this case. However, PY has just created a tip line for this and this could be very impactful if they prosecuted this, Julia. They're very aware of it. They're very aware, but historically speaking, they haven't been motivated to do anything about it. Um, as well as it's been difficult to prove it because mortgage technology is from 1968, 1972. Like, it is so old you wouldn't believe it. If you walk into a bank today, you'll see blue and black screens. No lie. And but now that we have you know kind of more of the uh technocracy uh participating in our government they could quickly find and identify this. The problem is Julia is so rampant. um this could uh be a serious risk to mortgage back securities and and and sort of more on the upfront in terms of people having an appetite for them because the risk it it's a very complicated thing but if you get caught doing something like this the person who kind of originated that loan has to buy it back after selling it and so this so you're these this becomes a way riskier prospect which means NBS won't be priced um you know at uh the optimal price, put it that way. So, yes, a lot of risk here. This is all kind of breaking news. Who knows? I have a feeling, you know, this is the political play of the day and it's likely we won't see a ton of systemic change. However, um these guardrails in October are going to have a very big impact uh to the mortgage market if they don't extend the program, which I have a feeling once we get to um true distress where you're there's no question about delinquency and things like that that they'll probably extend the program. But that's okay. The dam I mean it's okay for those of us who want to see home prices correct because the damage has already been done. Gold prices have been breaking all-time highs this year, but price appreciation isn't the only way to profit from owning gold. You can earn a yield on gold paid in gold without selling your gold or silver. Unlike dollar yields that can be slashed or even go negative, a yield on gold paid in gold means more ounces in your account every month, not paper. Monetary Metals is revolutionizing the way people invest in gold and silver. Instead of paying to own the metal, now you can get paid to own it. Right now, there are opportunities for you to earn 4% on gold, paid in gold in their marketplace. The interest you earn is paid in ounces of physical gold or silver, which you get in addition to any price appreciation that comes from gold and silver during the year. The question is this, why earn in dollars when you can earn in gold? Join thousands of investors who are earning a yield in physical gold and silver every month with monetary medals. Visit monetary-medals.com/julia to learn more. Okay, I want to go back to the state of the housing market real quick. You said something about the lowest record, lowest on record since the 80s. Was that sellers or buyers? Like what was that again? >> First time home buyers. >> First time home buyers. Okay. I'm 37. I want to buy my first home. Um my husband and I have been talking about, you know, I do. >> And I'm like, I don't want to be a sucker either. And I like to jog in the same neighborhood like every day. And I've noticed the same homes. There's about nine of them and they're they've just been sitting there. They're beautiful. They're gorgeous. Like, but nobody's buying them. And it's like the primo neighborhood. It would be like my dream neighborhood. There's one like entry level one there. That one's not even moving. The one like the ugliest the ugliest house in like the best neighborhood. Even that one's not moving. But also, when I look at like the new builds, they're not appealing to me. They kind of feel this is terrible to say. I'm sorry. I don't want to offend anybody, but they kind of feel a little cookie cutter, not quality. So, I'm definitely more like I want an older home camp, but at the same time, I don't want to pay a ridiculous price cuz I know they got inflated over the last few years. So, what's your kind of outlook on housing? Maybe is there some hope for firsttime home buyers or aspiring ones at some point? Will these prices come down? I've had some guests who say they're never coming back down. Yeah, that's, you know, there there are a lot of people and I understand that position. I understand why they feel that way, but it's usually because they're missing the supply story and the demographics. And our demographics are abysmal. You know, we're not uh replacing uh we're not at replacement rate. And so ultimately, uh the Harvard's done some really good studies about this that all of the housing bulls ignore about what kind of demand is out there from our demographic growth. Um and it it doesn't look good. And so as those baby boomers age out and you know either move into nursing homes or things like that, we know that 15.6 million will leave us between 2025 and 2035 and almost 50 million from 2035 to 2050. And they own the majority of the homes. And so we're already seeing it. This is what's so funny about our media, Julia, is that the inventory is there. It could be caught up in probate. uh that's when someone dies and the heirs have to figure out what they're going to do with that home. Um but the in the vacant inventory is there and so once people come to finally understand we don't have a housing shortage which I think you know if our immigration policy stays conservative um and in in fact if we see an exodus of any sort this is going to become obvious very quickly. Yes, there is hope and I believe and I meant to start tracking your city and I was going to do that last time, but I will do that for you because I I I'm invested now, Julia. I'll have to >> I'm going to take pictures and I'll show you the neighborhood that I like to drive. >> Well, I'm invested in your home buying journey now, too, because um and you will start to see deals and there's some really good uh there's a software out there that I like to use. I'm they don't pay me. It's just called Property Radar. And I bet uh if you give me some of those addresses, I'll be able to look them up and tell you the real deal, maybe it's a divorce, maybe it's caught up in probate, maybe there's an owner's lean on it, maybe they're in bankrupt. There's all kind because the housing market moves so slowly. There's all kinds of things that could catch this up and then they'll kind of, you know, it's the old gradually then suddenly. Um, I believe, you know, we saw suddenly in terms of inventory last at the beginning last end of last year, beginning of this year. I think we're going to see that again coming into next spring. But yes, there's hope. Um, and I, you know, we just have to give it a little bit more time. This could be a multi-year correction, but honestly, I think someone probably, you're kind of, I would consider in the Midwest, right? Cuz you're in St. Louis. >> No, I'm in North Carolina. I'm in Raleigh. North. Okay. That's right. but a very desirable city too. >> North Carolina is turning right now as we speak. Um the entire state and so there is hope for you and there's and and every state's turning a little bit at a different speed. This is how it always goes. Florida, Texas started the party. California is now joining in force and we're starting to see the Airbnb uh northeast towns um and places like Westchester County are growing inventory and they're tipping over right now. And then the Midwest will probably be the last one to join although it could be a competition between the Midwest and the Northeast. Um but yes, there's hope and timing will depend on your area. But, you know, I'd say and people are so sick of hearing that you just need to wait a little bit longer cuz it has been prolonged by so much intervention both on, you know, that loan modification. I was telling you about the the boomers refusing to sell, believing their estimates, I should say, as well as, you know, kind of the the bank bailout and sort of around rate cuts. But I think fairly soon all of those narratives are kind of collapsing and and this is going to start uh escalating. Yeah, I can imagine it could probably be a little emotional too, like if you look at your Z estimate and you see what your house is because it it probably gives you this perception of like wealth that maybe it's a little higher than you think or I don't know like um there's a lot of asset price inflation and it's not necessarily >> I call it the zest effect because it's the wealth effect, you know, it's that the wealth effect that if you think that your house is worth a lot, you're going to spend more or at least that's what >> prosperous. Yeah. Exactly. That's what they hope anyway. But I call it now the zest effect because everyone is wedded to their zest. And you're I mean Julia, there is nothing more emotional than housing. Like there's And this was something when I first started on X Twitter that I realized very quickly because people were very passionate about it and it's very emotional. >> Yeah, we have a lot of boomers who watch this show and I love my boomers. So I'm not I'm not going against them. I love my boomers. Um they actually are the biggest percentage of my audience is boomers followed by Gen X and so I love them. Um I want to own a home too. Um at some point do you I think last time we talked about this. Is it fair to say we are in a bubble? >> Oh yes. We are we are in an insane bubble that has been fueled by speculation um that went on steroids after the GFC. >> Do you think it's worse? >> Oh, I do. I I don't think that ever fully played out because um because of that rescue from Wall Street and what a lot of people say, well, you know, well then Black Rockck's just going to come in or Blackstone and buy up all the houses again. The only way that's going to happen is uh if price is correct, cuz the problem right now, their net sellers in mo in those cities where they have a large presence because their property taxes and insurance make it cost prohibitive. And so they're doing things like in places like Atlanta and San Antonio, they're slashing prices. So the only way it makes sense for them is not only do you need cheap borrowings or cheap funding, you have to have those h home prices much much lower because that's the only way and insurance. So, I was I was on site at a big three um non-bank originator and serer last week and they told me over their book they looked at their whole you know uh 4 million loans and they said from 2020 to 2025 insurance had increased by 50%. and they did kind of a study and said,"What is the tipping point for someone when their escrow goes up?" And escrow is where your bank pays your taxes and insurance for you. And so what happens is even if you haven't put the money in through your payment, that bank or non-bank has to pay it out for you. Um, so they they care a lot about this. Yeah. Like what's the tipping point um for to put someone into delinquency um when their escrow goes up? Because when your escrow goes up, your payment changes. So let's say your taxes go up and your insurance goes up, you're none the wiser. You're just paying your mortgage payment and then suddenly you get a letter in the mail that says, "FYI, your loan payment is now $500 more a month." I mean, I can't think of anything more distressing to get in the mail, right? That's what's happening. And you know, North Carolina before Helen um they were talking about raising insurance, home insurance by 40% before Helen. >> 40% before. Wow. >> 40 before. So, so this is what's And so the serer said actually, you know, right around 9% is the tipping point. I have seen escrow notices go out far exceeding that 9% because of the increased taxes and insurance. And so this is tipping people into delinquency and it has been since basically 20 late 22 23. But you've had these aggressive loan modification programs that have kind of been catching them before they go over the dam. But the buildup behind the dam is so big come October 1st, we're going to start to see them coming over that dam. >> So we really need to be paying attention for October then. Um >> yeah, it'll take some time. Uh but but you know by Q1 to Q2 of 2026 uh our foreclosures will be meaningful. >> Yeah. So is it fair to say that the spring and summer selling seasons were just abysmal? Like how would you characterize it? Like what would be your word? >> I I don't there they were so bad it's hard to comprehend because again we've increased population. How could we be having sales as low uh like the lowest in 30 years? I don't I mean, how's that even possible? And so, they were they were really bad. >> So, and those are like the most important seasons for selling because now we're getting into fall's going to be we're at the tail end of summer. Fall's going to be here before we know it. So, what does that kind of set us up for then? >> So, this is very interesting uh where we are. And so, you know, history does not repeat. But what's fascinating is we've been tracking along 2008 in terms of uh price gains and not gains or deceleration. So what happens you get your seasonal price peak in June uh for the existing homes because that's when everybody's buying selling and then it just starts coming down. You see this every year. Uh you saw prices increase in 2007, prices increase in 2008, like during that selling season, but on the back half, you can come down very quickly because people are the people that are listed are pretty desperate. And so what we could see from here, Julia, is a very um ex uh accelerated uh deceleration because uh this is seasonally when price start to go down. We're already seeing um you know yesterday K Schiller came out with its seasonally adjusted series saying that for I think the third or fourth month prices are down month over month. You don't see that in the selling season. Again in 2007208 that didn't really happen. And so this is kind of a big deal. Um and the end of the year could get very interesting and we could end up at the end of the year with year-over-year uh price significant price declines. And so, you know, it just kind of depends on uh I was really kind of hoping we'd see lower rates at this point because last year we got a bit lower than where we are right now and you saw a ton of inventory coming to market again because with in the seasonal downturn like which is what we're in right now, people pull their inventory because they weren't able to sell. They're frustrated. They don't, you know, they're just like I'll get it in the spring again. Um, but October is when the Florida, Arizona, kind of those sunb belt states, that's when their season starts or the snowbird season. So, it's going to be very interesting. Again, that's why this fall, I'm saying, is going to be very telling about our speed uh in terms of this housing market correction. >> I will have to get you back on in the fall and October. We have to discuss this. Let me ask you this because one of the things I've learned from our conversations is like >> mortgage rates are influenced by the bond market rather than the Fed directly. Um so we have the Fed meeting coming up in a couple of weeks. What impact do you anticipate from >> I don't even want to say it's they're probably going to cut. I think most people think they're going to cut. Um but what for I'll say potential rate cut in September. What kind of impact do you anticipate that could have on home buyers and the overall housing sector if any? It's it's it's the question, right? I mean, last year what happened is you saw rates come down in anticipation of that rate cut and then they just took off uh just kind of like they gave the finger to the Fed. Um right now the bond market has been staying very steady uh where it is. Um I was hope I mean I was hoping we would repeat history of last year which everybody was front running kind of that Fed rate cut but we're not. we're we're sticking pretty in range here. Um so I don't think it's going to have an impact uh if they cut. Um now it could be that the bond market's kind of sitting there going uh let's let's let's see what you really do. You know, let's see what's really going to happen before it kind of makes its move. But it's so dynamic and there's so many influences. Um, you know, for instance, back in April when uh things really got hairy, you did not have foreign demand for that 10-year Treasury, which really caused a lot of trouble. If we're in a state of distress, all kinds of things go people are they're they're having to do whatever it takes to support oftent times their currency or things like that. And so, it's a very complicated bond market. So, I just kind of watch it as it is. And um right now it's staying pretty steady. So, >> um, Melody, I always enjoy our conversations. I love having you on the show. I can't wait to get you back on in October because I think we're going to have some important updates. Let's, um, before we let you go, let's let folks know how they can support your work. I'm a paid subscriber to M3 uh, Melody on Substack, but I would love for you to share more where they can find you on social. Any parting thoughts that you'd like to leave this audience? The floor is all yours. >> Okay, sure. You can find um my Substack at M3_Melody Substack, my YouTube M3 Melody YouTube and on X Twitter at M3_Melody. Um just final words. Um I know that we all get emotional about housing. Uh I mean it is shelter. It also often is a marker of where we are in our lives or at least we take it that way. Uh but when we get in over our skis, uh it causes all kind of stressors that really impact our relationships and our quality of life and it's not worth it. And I know that renting is very annoying and you want to feel like that home is yours. But honestly, in this environment, property taxes are so high. It's what many people are saying it's like a mortgage payment. And so we need to let all of this malinvestment get out of the system. and then it will be, you know, I think those first-time home buyers and folks will be able to afford homes again. And so it takes patience and it takes being logical over emotion. Um, but you know, I say just hold on and if nothing else, you know, just prevent that stress that could is could really destroy, you know, relationships. So Melody Wright, thank you so much for being so generous with your time, all of your knowledge, helping us all learn and get better. I always always enjoy your appearances on the program and I look forward to many more. Really appreciate you. Have a wonderful rest of your day and week. Thank you again, Melody. >> You too.