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it it will continue grinding down until we make that uh correction that I do believe is going to be worse than the GFC, but we'll have to just keep watching. Uh but the trend from this point um is really going to be down over the next 18 months. [Music] Welcome to Thoughtful Money. I'm Thulful Money founder and your host, Adam Tagert. We've got a special treat today. We are joined by Melody Wright, housing analyst extraordinaire. Melody, how are you? I'm doing well, Adam. How are you doing? I'm good. And it's good to see you again, Melody. Um, you're one of those people that when too much time goes by since your last appearance. The emails start coming when Melody's when's Melody coming back? um started getting them in force this week because I I interviewed housing analyst Ivy Zelman a few days ago and um you know as as respected as Ivy is um I suspect that you perhaps might have a different outlook as as she and hey that's what makes a market so that's what makes all this interesting um and uh I also want to note too that um you know we'll we'll talk about a couple of topics uh today but um you are going to be providing the housing analysis for Thoughtful Money's upcoming fall online conference. And at the end of this video, I'll tell folks more about that because I'm sort of officially announcing that pretty much with this uh with this video. So, um uh folks, if you want to, you know, sign up for that and lock in the early bird price, you can do so by going to thoughtfulmoney.com/conference. But, okay, let's get to the meat of things here, Melody. So, um, you know, if I remember my notes from our many conversations leading up to this one, um, you have been, you know, increasingly confident, I guess I'd say that, uh, the housing correction is is on and that 2025 will be a down year, the first down year nationally in a long time. So, gravity is is sort of finally starting to take hold of average prices nationally in America. Now, that's a it's still very much a tale of two markets, very bifurgated. You've got some markets that are really correcting hard. Uh Texas, Florida at the top of the list, but you've told us it's the infection is creeping into places like California and a number of other states. Um largely driven by inventory finally coming onto these markets. Now, we still have a bunch of other states, especially in the Midwest and the Northeast that are a different story. Um, but net net seems like this year, like I said, gravity is starting to win and we'll start to see negative year-over-year national housing prices. So, let me know if I described that correctly. And um, more importantly, what has your attention most right now in the housing market? Yeah, you described it really well, Adam. And you know, these things just take an inordinate amount of time. And I know that can be very frustrating for people, but this this market when you don't have any transactions. Uh, and again, I mean, we the it is truly shocking to me, and I've said it on your program so many times, I feel like people must be sick of me saying it, but these are the worst sales we've seen in 30 years. You know, worse than the GFC, and we've increased population by 20%. Explain that to me. you know, so what's happening is that the only people that are really trained are really what happened in 24 um and 23 and 24. I mean, this is all very they're when you look at those trend lines very similar. What happened is only those that could afford it or were subsidized by the government um to pay these higher prices were transacting and that kept your median price up. But as you say, um, and you and I started talking about California very early that I I think we scooped it. Um, I don't know if you've seen on, uh, ex Twitter when I shared for July, uh, the 20 plus cities that had both year-over-year and month overmonth price declines. And why this is important is because, you know, this pricing prices have a seasonal pattern. And it it is typical that we would start to see um in and especially in the s southern states declines um from this point forward through the end of the year until the next spring selling season. But when you look at that chart, it's California, California, California. And you know, I think Adam, you probably have something to say about why people may be leaving California. I do. I do. We'll get to that. Yeah. Um, so, um, but you know what I'm really looking at right now, honestly, are the builders because, uh, and something that I'm going to share in my next update once we have prices, which we we should get, uh, right now new home prices are way below uh, existing home price, that median, and before last year, that had only happened one other time in 2005 and June. Um, but we've started to see this persistently. But what I'm going to do is I'm going to take the average between LAR and all these other builders which are saying they're giving, you know, price concessions or or concessions of about $45,000 on top of price reductions, which would even increase that price even more, Adam, to the tune of like $80,000 less than existing uh median home price, which is just bananas and cannot persist. And so um last month very interestingly uh we saw new home median price come in around 400,000. We saw existing median price come in like 435,000 etc. And some people are saying um you know oh that's because of the square footage they're building small that argument. No one's ever been able to show me the math on that. And I don't think with such a large gap uh you know historically since 2012, new home prices average $53,000 more each month than uh than those existing homes. So I'm really watching that carefully because I think that they are signaling what is coming. Uh the other thing is, you know, we Las Vegas I I just want to they've been all over the news, but they're they're always a bellweather for this kind of thing. And honestly, you know, I just when I was there in 2023, I can't believe it took this long for all of this inventory to start even coming to market. And I I know that there's more, but you were just seeing that market get hit. And you know, that's a big tourist market. Um, we know tourism is down. And so what you're really, you know, the 85 cities that I track, people may wonder half the time, why are you tracking Portsouth, New Hampshire or something like that? I was tracking a lot of vacation towns because I knew that those Airbnbs uh would start to trigger issues as they have. And so you can kind of see this really weird thing that like even in the Northeast, you're seeing vacation towns where those prices are coming down. Um and so this this all takes time. And then what I'm hearing from my followers right now, and you can see it in places like Westchester County, the Northeast is starting uh it that the accumulation of inventory uh that's going to drive those price declines. And already I'm seeing them in some New Jersey cities um you know, year-over-year and month over month. So, it's it just takes time. And I'm I'm trying to decide is it going to be the Northeast or the Midwest that's going to be last? Because I think in terms of making the turn um because of that accumulating supply because typically well the Midwest because Ivy honestly I mean on several her quarterly updates I remember her talking about Ohio over and over is kind of the last place you could get really an affordable home price. And so the all the investors sort of descended on the Midwest. But hearing from followers there as well that's really starting to turn. And you're seeing that in like Cleveland home prices down um year-over-year. So, it's all beginning to happen. Uh it just takes time and you know people are and there are still markets that are just topping right now, Adam. You know, I just wrote about Bentonville, Arkansas. Uh it is just now seen its top and so it has and that was a great that was a great report by the way. And of course, people hold that up because oh, Walmart's basically subsidizing it so it's this great protected market. Well, it's actually showing weakness now. It absolutely is. And I This is what I think a lot of people don't understand, Adam, and you and I talked about it. And so, in many ways, you know, I think it might be fun in the future to come back to these shows and how long we were talking about some of this. Sure. But, but this is motivated selling. You can see in the chart of Bentonville, uh, their home sales and they're going up and some people are like, "Oh, the market's hot, hot, hot." It's like, no. Uh, people are trying to get out. um very similar in the commercial real estate space there. There's a whole block that just went up for sale. Now, I mean, they have some of the lowest uh vacancy that I've seen across the country. Why is this going up for sale? So, there's just a lot of things underneath that house uh that labor market that show me that there's trouble ahead. Not to mention, they just overbuilt. Like, they've overbuilt all over the country. So, um, that's kind of what I'm I'm watching these, uh, these resort towns really come under stress and and then it's kind of moving into the to the Midwest and the Northeast. And so, I think very soon we're going to see um, year-over-year price declines in the Northeast. We're already seeing it. Uh, I I think it was both Philadelphia and Pittsburgh. I can't remember. If not year-over-year, they were month over month. And so, um, you know, seasonally, yes, prices should start to come down, but these are outsized moves right now. And as you and I talk about, people simply cannot afford these prices. And more than that, Adam, I think sellers are just very delusional uh because they think they don't have to make updates to their homes and that, you know, they're going to get demand this price. But I don't know if I shared this story with you, and I might have, but I have a family member that just went to go do a re refinance, and the appraiser comes and um suddenly his home is worth 20,000 more for issues that were there when he bought it a year ago. Um I'm sorry, not more, 20,000 less. Yeah. Yeah. Sorry about that. Uh 20,000 less. I mean, that's massive. This was a very not a very expensive single family home. And so this is what's happening. And as the banks are kind of pulling back a little bit, are being a little more uh checking the boxes, then this is you're going to see this over and over, which could be why we're seeing those high cancellations. So when you're asking what I'm watching, I mean, I'm always watching it all, but I I'm really excited about uh that the new home sales results this week and what that median price looks like. Okay. All right. So, a couple really important things um combined up in there. One is if I heard you right, you sort of expect this bifurc bifurcation gap in the in these these markets um to start closing right um and you know even the markets that people have said ah these these are bulletproof markets northeast Midwest you don't think you think gravity's going to going to start to win there too. Um uh okay. And then um uh you think that the the kind of upside down relationship between new homes and existing homes is really just more a window to the future of where things are going. You and I have talked about this a lot, right? You know, hopefully mortgage rates, you know, come down here and whatnot. Um, but it seems like, you know, I think you and I have done the math many times and said, look, inevitably just price is going to have to be what breaks here and price is going to have to come down from here. You're nodding vigorously as I'm saying this. So, the new home, you know, the the home buyers are just basically showing, hey, if you want to move inventory in this market, the price has to come down, whether that's an actual price reduction, whether it's mortgage buyowns, whether it's these concessions that you were talking about. So, they're just showing us the future and the rest of the market is just taking its time to catch up. Okay, more v vigorous nodding on your end, which is good. Um, you also mentioned that um, uh, banks are tightening um, their lending standards and and you're starting to have maybe a a more critical eye on the appraisers as you just gave an example of there. So, that's going to sort of have an additional cooling effect, right? Because people are not going to be able to get as much money to borrow to buy going forward. Okay, more nodding on on your end here. Then last is you're saying that um you know in the the previously bulletproof markets um you're seeing the weakness start in the resort towns where there was lots of tourism and lots of Airbnbs and that totally makes sense but I get the sense you're saying that contagion is not going to stop there. It's going to go just sort of into the regular parts of of those uh states as well. And this is where I think a lot of people maybe you lose some people where they say, "Well, no, no, no, Melody. We all know that there's been a chronic housing shortage and there still is." And I know we've talked about this in the past, but you think, don't put those words in your mouth, so correct me if I'm wrong, but you think that is a false narrative and is increasingly proving false visibly as we see more and more inventory come on in more and more markets. Correct. That I mean, so correct, you know, due to two things really. demographics uh because you know the boomers are are starting to offload their second, third, fourth homes um and then ultimately it will be their primary homes and and you see that as well. Um but that also the what's driven the housing market since 2012 when the government invited uh institutional investors in to start buying up these homes that were in foreclosure and it's just really continued from there and sort of mom and pop investors jumped on that bad bandwagon and really piled in during the COVID years and as you and I have also talked about we know that a lot of those institutionals are net sellers especially in these places like San Antonio and Atlanta where they have a very large presence but also where you're seeing a ton of inventory distress and high property taxes um where you know the investors don't get the same considerations uh you know like you do out in California um if you it's a homestead property. So yes, that this is a demographic story. Um, and we just were seeing households contract, not form. And that is a big big uh red flashing red signal is that for years and years and years um we were seeing that household size get smaller and smaller. And I can't remember if we talked about this, Adam, um, but do you happen to know off the top of your head what the average household size is right now in the US? I don't uh average household size I'll guess 2.3 just to throw a number out there. Okay, you're close. 2.5. Uh and it but the important thing is it's been just kind of getting smaller and smaller. It's now starting to go up as households consolidate because they simply cannot afford uh to live on their own anymore. You know, like I've talked we're already seeing enough consolidation to start moving that number up. Wow. That's that surprises me that we're seeing that this soon. I I I thought it would always happen, but I didn't think it would be that material this early on. It's in the data and they just recently released, I think even two days ago, an updated kind of quarterly view of that. Um, so, but yearly it kind of stayed the same and then it just recently went up. So, it you know, and I think we're going to see so much more of this. Um, you know, personally, I moved my mom in with me, you know, uh, because it just didn't make sense. The financials didn't make sense at this point. So, um, I think demographics are going to take hold here. Uh, and and I just, it's so so interesting to me. A lot of these New Jersey, New York markets, if you go into using something like Property Radar that I've talked to you about before, you can you can actually see the stress. You can see the owner's leans. You can see the delinquent property taxes. um you can see the bankruptcies, you can see the divorces and so I think distress as you know we kind of talked about and we're making that transition now from motivation to distress and I think that uh there's a lot of there's still a lot of opium although you know with the stock market where it is I don't know about you but it doesn't feel like mania it feels like anger in some weird way as you know it's I I don't think that people are out there spending money left, right, and center because they feel confident about the stock market. I guess when I say and I think that's the boomers, not everybody, not perhaps the retailers that are speculating. Um, so I don't even think even if the stock market continues to go up, uh, I still think we're going to see these the distress. Um because as we know there there's only a small percentage of people that actually own stocks or are the majority of stocks in the United States. And so I think they're looking around and going uh what's happening? Um but they're not desperate enough yet. Uh they're not slashing prices yet, but it is it's really starting at them. I'm seeing it all over the country. Okay. So, you and I have talked about this and we'll I'm sure talking about it again right now, which is um after all the loan forbearance programs have, you know, ended and and now student loans have gone back into repayment and that's the one that you have to pay. Um we're seeing, you know, strong signs of delinquent of uh delinquencies and and also eventually defaults um in student loans, but we're seeing that spill over into other forms of consumer credit um credit cards, auto loans, mortgages, and um I think we're still at the very early part of that wave rippling through and that's going to have a lot of issues with people's ability to repay. here again nodding vigorously as I'm saying this. So love to hear any thoughts you have about that that we haven't perhaps talked about in the past if you got anything new to say but also the um the FH FHA market. You have told us in the past about how incredibly important that has become in terms of influencing home prices and the government's role in that. I believe you are seeing a lot of signs of concern there that FHA borrowers are also like looking really weak now. Is that true? Oh yes. And and you know quite honestly they've been looking really weak since June of 2023. But what the Biden administration did to get through the election year was um do an unprecedented uh loss mitigation workout where essentially the borrower could go back. They could not pay. And I've seen loans where they just got the loan, didn't pay for three months. I think there's actually scams out there, groups of people that know that you can do this, investors, um didn't pay at all. They go to the serer and say, "Hey, I I had some issue." And they said, "No problem. we're going to put it on the back of your loan in a non-interestbearing lean. Um, and then they didn't pay for three more months and they went back to the serer and then they didn't pay for three more months. And this has been happening since basically April of 2024. Um, and you know, I you can see work by people like John Kamiski that these borrowers who have taken this partial claim are five to seven times more likely to go delinquent and so many of them have. And so what we know happens in October is number one, uh, they're going to put guard rails on this program where you have to make a trial payment. This is something standard in all loss mitigation, Adam, that this I mean since the GFC that you have to make three payments before you can officially get that work out. Well, they got rid of that uh in 2024. It's coming back. The other thing is they said no limit to how many times you could go back. The only limit was 30% of your unpaid principal balance, which if you think about a high balance loan, that's a lot of money. And by the way, you're not going to get caught up for years and years just because of the way the amort heardization works on that and the interest. Um, and so now what they're saying is you will only be able to get one every 24 months. The other thing is, and this is important, if you have delinquent student loans, you will not be eligible. And you know, per the our uh HUD, we believe that's about 40%, not 40% delinquent, but 40% of FHA borrowers have student loans. And we've seen these incredible delinquency rates, over 10% uh in student loans. And so, yes, pretty soon FHA uh it's been in distress. It's just been held up by this government program. And so, when that goes away, what's been building behind the dam is going to come over. And you can see it already in foreclosure starts and foreclosure sales are up year-over-year. Um, and so some may think, oh, they look at Black Knight and they're like, oh, delinquency looks down a little bit. That's because Black Knight excludes foreclosures from their headline uh, delinquency numbers. And so I always say, look at those. Yes, look at the delinquency number, but look at those foreclosure numbers. And and they are start they're on the rise. Adam ca Adam that's atom not you Adam came out with a report I think today uh showing these huge uh increases in foreclosures now from very very low levels I'm not saying there's a foreclosure tsunami happening right this second I don't see that tsunami until probably and with you know barring any government intervention till Q1 or Q2 of 2026. Okay. Um, but it seems like we talked earlier about you you're already seeing banks start to t tighten their lending standards. My my guess is, you correct me if you think differently is we're going to see those standards continue to tighten as these housing headwinds uh continue and and especially as we see more and more borrowers fall into distress where the banks are just going to say understandably, hey, look, you know, we got to be a lot more careful who we lend to now. Right. I I think too, you know, we've talked a lot about it's the non-banks that are lending and uh doing the majority of lending and and they have to use their liquidity facilities or borrowings to do that lending and a lot of these are getting refied at higher rates and so it's not making a lot of sense. So it they're not actually being prudent, Adam, as much as they're constrained. uh and as well as this the consumer is not giving them a lot of choice in terms of seeing the this this debt to income increase as well as these credit score drops that were that have been impacted because of student loans uh reporting to credit again. Okay. And so an example of one of these non-bank entities is like Rocket Mortgage. Right. Right. Yes. All right. And you've you've said in the past quite ominously and and I just want to remind the audience here too that your your your primary expertise is in the mortgage side of things. That's sort of how you enter this industry and you you still are active in it. um where if I remember correctly you said something like um you know these companies weren't really around much in 2008 and so they don't have the institutional memory of the mistakes that were made and that they very much look like they're making a lot of the same mistakes and are going to have to reap that whirlwind at some point. That's correct. And and it's funny to me um what recently happened with Fanny May and Freddy Mack, they just took massive provision for loan loss. Um, and that that's what you do. You take that through the income statement to build your allowance for loan loss. And what they said in the news was uh because of home prices decelerating are not being as much. But what they understand is is that you can paper over all of these expenses when that origination machine can just keep juicing juice, you know, just going going. Um, it keeps kind of feeding money into the machine. But when that starts to slow down, then you can't you can't paper over your losses anymore. And the reason I'm mentioning them is because my former boss is the CFO of Freddy Mack. And I know he knows and um but I don't think if you remember what happened at Freddy Mack, they kind of wiped through the seauite. He was one of the only ones in the seauite left standing. And so I haven't talked to him, but it's very interesting to me that once people got out of his way uh the first quarter we got a huge provision. You also saw it in rock in uh Mr. Cooper and others they are gearing up. They understand that after October there's not any good news on the horizon because the other thing Adam is they were they got paid incentive. So if you got if you did four of those partial claims they got almost $8,000 which is not a lot of money. It's not like they were getting rich off of it. They were keeping the lights on. And so when that starts to go away as well at the same time that they have to advance out unpaid taxes and insurance and I'm seeing advances all over my client books increase primarily especially one who has a huge presence in California because of those massive insurance increases uh after the fires. So th those non-bank servicesers are in for a world hurt. And I have a theory that um I believe uh what's recently happened with like I don't know if you saw this the ban on trigger leads which probably doesn't make any sense to anyone but believe it or not when your mortgage company would do a hard pull on your credit those credit companies uh agencies would sell that to other lenders who would buy those and then call you up trying to steal you. Well, out of nowhere, we get this trigger lead ban. And guess who it hurts the most? It hurts the non-banks the most unless they do their own origination and servicing, which someone like Rocket and uh Mr. Cooper will have that advantage. However, it's the banks are going to do real really this is going to help them quite a bit and my belief is they actually want to get back into mortgage lending after backing away for so many years. Um and I think that's why you're seeing they want that supplemental liquidity ratio the SLR uh to be lower. That's you remember that um talking with Bent. So I think the banks are getting ready to come in and likely snap up a lot of this uh and bring it back into the banks um because it really the non-banks don't have deposits and and it's really a very dangerous gain and why you know Yellen was yelling about it for years. um they it's just it's massive exposure. But anyway, that's a theory that uh we'll see uh if it plays out, but I I believe that the banks will likely start to move in here. Okay. Um well, I find it really ironic and folks is no joke. I I'll hold my phone up here. I I got this text as we were talking and it says, "Good morning. We offer direct approvals with no credit check and funding in 24 hours. Working with us makes the process simple and hassle-free." So, I don't know. This may be one of those trigger leads. It's just it's crazy. Total spam from out of the blue. I have no clue who this this this number is, but yeah. So, somebody sold my my info somewhere in the way you're describing. Okay. So, um let me ask you this then. So, like I said, hopefully mortgage rates come down. I mean, obviously the entire real estate complex is is hoping for that. Um but as like let's say the Fed does start cutting here right as as it is still expected to do um these increasing headwinds these these need for banks to increase their loss pos their loss um allocations uh provisions um and as these companies start tightening their lending standards Do you do you expect mortgage rates to move very much or will one kind of be offsetting the other? Right? You know that the Fed's trying to get the short rates down using the short end, but but the banks or non-banks are starting to tighten their lending standards and so basically the mortgage rate kind of would would consumably or presumably go nowhere, but I mean it could it could maybe go up if they tighten faster than the Fed cuts. Yeah. Yeah. I mean watching the tenure this year has just been fascinating. Really? I mean it's always fascinating, but the last I'd say six months have just been wild. Um, so I, you know, to me it's even more than that. It's that I don't think we're seeing foreign buyers kind of step back. I think, and I haven't validated this information, but I saw a tweet that Chase, uh, had the largest increase in treasuries on its balance sheet. And I have a feeling what's happening is that um, the primary dealers are having to step in and uh, kind of take the place of foreign holders and uh, or foreign buyers. And so honestly, Adam, I'm more concerned. I the Fed, it doesn't matter. I, you know, last year they cut in September, mortgage rates took off because that, you know, that they're determined by the bond market. Um, and then and the appetite for mortgage back securities as you rightly discussed, which are going to have start to carry a higher risk premium because of these losses. But, you know, for me looking at mortgage rates, my biggest concern is just kind of this um stepping back by international buyers in the bond market. Okay. Um well, it's interesting. Um you know, I I I don't know where mortgages are going to go. I have been talking to more people, I think, who are are getting more confident that that bond yields will come down. And I realize not everybody thinks that way. So, there's probably a bunch of viewers who don't share that opinion. Um, but I think if rates start going down because of a safety trade, um, you know, yeah, that might end up getting us lower bond yields and lower mortgages, but it may not be for a very good reason. That's right. That's right. Um, okay. So, um, a couple of things. One, um, you know, I I I don't I'm not trying to pit you versus Ivy. I'm just trying to note that you guys have what I perceive to be, you know, different outlooks. Ivy basically said um she thinks more or less like the worst is in for the housing market. She said we're going to be kind of grinding along the bottom here for a while and yes, she expects um prices to be down nationally in 2025, but she does expect things to be healing and and really things to get better as 2026 goes along. I get the sense from you that you feel like no, we are still in the early stage of a multi-year housing correction and looking at at least through the end of 2026, you just think it's just basically going to get worse. Correct. Absolutely. And you know, and I kind of find it confusing u that that take. Um, but I because back in 23, Ivy was talking a lot about demographics and um, so that's to me why I think she and I differ so much. Um, I feel like um, she kind of lands in the camp of what I would call the inflationistas that just think that prices are going to go up, you know, and uh, it just keep going up. But I think that supply and demand is going to take hold of um you know take the reigns here. And so our demographics as I've talked about on your show many times and someone inevitably says don't talk like that Melody. But unfortunately you know 15.6 million boomers will be leaving us between 2025 and 2035. Um and they own the majority of housing. And so I guess I don't understand. We've got 500,000 new homes in uh progress right now for sale. Um we're not selling them. We're seeing very low sales for new homes. I'm not sure how. And we've still got plenty in progress as well as I'm telling I mean Adam, I know for a fact we don't have all of those uh permits like that that people can build in unincorporated areas and I've seen it all over the country and they don't need a permit. So, I believe that actually that inventory is probably 25% bigger than what we act we see in official numbers right now. So, I we're not going to be able to get through that inventory when you've got 15,000 mini hotel owners in San Diego, for instance, that are going to need to offload those single family rentals because tourism is down and uh it no longer cash flows. it doesn't pencil because of insurance and property taxes and you can't borrow cheaply anymore. It just takes time for all these especially in the what's called the non-qualified mortgage market. Um there that's where you're seeing a lot of the ARMS or adjustable rate mortgages and things like that. Those talk about not learning the lessons of 2008. Yeah, it it's so frustrating, Adam, but we didn't. And in fact, the banks have started to go all in. We're in the last part where they're getting everybody in they possibly can before they know it it's going to fall apart. And I, you know, I think this everybody knows that you have to do some of this risky lending. But, um, because of all that investment, because of all those long-term rentals that the boomers owned, uh, we are going to see continual increases in inventory. And I found it very interesting, Adam, to see some of the folks that called the crash last time. And it's not just Ivy, it's other folks out there, but I don't there there seems to be some kind of blindness that I, you know, I don't really understand. But also, I think what I see them all missing is the mortgage market and not understanding exactly how the government has come in here and held up prices. Um, but it can't last forever because these FHA borrowers are just collapsing. So, right. Well, it sounds like the FHA borrowers are are are collapsing, meaning, you know, they weren't as creditw worthy. They were got given loans they shouldn't have gotten. They're now getting to the point where they can't service them. But at the same time, that government distortion is getting diminished, right? The new administration is coming in and saying, "Hey, you know what? This was too generous. We're going to start restricting." So, it's kind of coming from both ends. Correct. That's right. That's absolutely right. Yeah. And I just saw something recently uh that you know FHA just came out and said the other thing is all that American Rescue Act money uh that went out to the count the states and uh in cities that went into down payment assistance programs and FHA just announced that they're upping the credit score of people who are receiving down payment assistance because of they're seeing such crushing delinquency. So again, it honestly because the government backs so much of our mortgage market, it's more important what they do versus what like the non-banks do for it's just like we see in education and any other system where the government comes in and becomes the primary lender, right? Where they just distort prices far beyond what the true price discovery would have them be. And you know that's great if you're a beneficiary of that right up until it doesn't work anymore. That's exactly right. Hurts all of us. Okay. So, a couple other things I want to bang through here. One, um, so it's interesting. I've talked about with this with Ivy over the years. I've talked about it with you over the years and a few others. Um, it's been a real sort of pet interest of mine, which is, you know, what does happen to real estate when the Boomer generation starts aging out? And by aging out I mean either you know having to give up their homes because they are moving into assisted living or a nursing home or they're dying right and as you said we're going to have you know 10,000 a day basically for the next 20 or yeah 20 years or so more or less uh you know age out per day right and the question I've been asking over the years is okay so I can I can clearly see this coming in the horizon but when does it matter matter, right? And it's funny because it kind of feels like, you know, I've heard, well, it's not for a while, not for a while, not for a while. But now I'm beginning to hear like, no, it's now here. So, you're basically I'm kind of getting from you that like, hey, we've had the first pitch. Like, we're in the first inning now with this thing. Correct. Absolutely. And I I know this not only from just looking at the data, but helping people myself who are inheriting properties right now from their boomer parents. And you know, and it's all kinds of a mess, Adam, actually. You know, they can't either they can't afford it or um somebody's taking leverage against it and they got to get out and so or there's just multiple kids, right? It's just multiple kids. Who gets the house? Well, we don't know. So, let's just sell it and split the proceeds, right? So, I'm just curious like what what's your gut percentage of a house that gets passed down by a boomer parent to their children? um whether it's one child or 10 children, what's the percentage that it actually just gets liquidated? I think it's a lot more than we think. Uh I I I mean spitballing I would say at least like 65%. Okay. So yeah. So that that right there that's a lot of homes coming on the market, you know, every day for the next 20 years, right? That's right. That's right. And we can look at Japan. I mean, if we have questions, we can look at Japan and their aging demographics. They've got 11 million uh vacant homes right now that US citizens are going over to buy for pennies because they're they're vacant. No one's And and Adam, quite frankly, this is what's so kind of upsetting about this inventory shortage narrative is I have driven all over this country and I can tell you there are vacant homes everywhere. And so, it's already happened. It's just that our data is so lagged um and so out of date, you know, we really don't have a true picture. And this is why I just say drive around folks, just look and drive around at night. You'll see how much vacancy. And here in Johnson City, which is a tiny little town, you see a ton of vacants that were in the middle of a fix and flip and they had to abandon it because they could not afford it anymore. I'm seeing I mean, it's kind of crazy in this small town. you're seeing uh half halfbuilt construction homes getting abandoned and getting listed. And you're not in like a hot flipper investor market, right? Yeah. We have we have one big event. It's the international storytelling event and my sister used to Airbnb be this farmhouse that I live in now. Um but basically like she got she was booked plenty in like 21, 22, 23. It was just like and that's the way it was. Um, but everybody bought they bought here too uh because it was listed as a number four place to move I think in uh 2023 or 2024. Again, it's all this narrative um you know that has been driving a lot of the speculation. Everybody was like, "Oh, that's going to be a number four spot to move. Let me go buy a house there." I mean, that is literally what was happening. So, it's really interesting because I mean you and I have said for a long time as we've you know worked to debunk the housing shortage narrative is is we we don't we haven't had a shortage of units. What we have had is is an imbalance of ownership. Right? So, you've had a lot of homes that are owned as second, third homes or owned by an investor or in the process of being a fix and flip or someone's buying to rented as a short-term rental or whatnot, right? So, you've had a small number smaller number of people who've owned a lot of these homes, right? So, you know, if they were just magically put on the market, we'd have plenty of homes for people, right? And that's the danger here, right? is as collectively those people who own the homes start having lots of reasons to put those homes on the market, inventory can grow much faster than most people realize. And I think we're starting to feel validated on our warnings around that. And what's kind of interesting is, you know, it it can be in these, you know, hot tourist markets. Um it can be, you know, where there's um a lot of vacant homes. It can be in in, you know, fix and flip markets, whatever. But also like um I was just listening to somebody from PaloAlto literally just two days ago complain about they they they live had lived in Palo Alto for decades and decades and were sharing how frustrated people that are there about the decline in community because so many rich Chinese basically have bought homes there mostly as a way just to get capital out of China. And so there are a lot of these, you know, big mansions pretty much that nobody lives in and, you know, the community that once was in the neighborhood is gone because you just literally have less people living in the neighborhood now, right? So it's happening kind of all over the spectrum, which I find really interesting. It's not just one weak part of the the economy or or society. It's kind of, you know, for all these different reasons and all these different places. Um, let me um let me ask you actually on this. Um, so I have railed in the past about how high um, investor purchases of single family homes got this time in the housing market cycle, right? And I railed about it for two reasons. one because as you said earlier, I felt like it put the market at greater risk when a downturn came that if you had, you know, an institution that owns thousands of homes, especially in a maybe the same metro like Atlanta you gave an example, for them the decision to sell is just an Excel decision. It's not a roof over their head. It's just, you know what, these aren't penciling out the way that we thought. Dump them, right? And you could dump a ton of inventory in a market in a short period of time and really pull that market down. We're seeing that in a number of areas now. But I think even more than that, what bothered me was just look, when you have a housing affordability issue where your younger generations just can't afford to form families because they can't buy homes and whatnot. And I'm sure you've seen that chart. I put it up recently that's been all over the internet of 30 year olds who were both married and homeowners. It was like 50 something% in 1950 and it's 13% now. Right. To me, that's just toxic to your society, right? And so, the question I've had is like, why don't we have some guardrails in there that say, hey, when at least when markets cross some sort of unaffordability threshold, we start limiting investors that can buy in and I would say first and foremost, you start with foreign investors, right? Like, why are we letting foreigners who don't even live here buy up our our single family housing stock, right? To me, that's like a no-brainer. And we're all of a sudden starting to hear that with things like farmland and things like that. We've finally woken up and said, you know what, we probably shouldn't be selling this stuff off, right? And I've heard some rumblings about foreigners. I haven't yet heard it about just investors and I would probably limit large institutions from buying first. But but there would be times probably even now where I would place limits even on the mom and pop landlord to say, "Hey, you know what? like until the median 30-year-old can afford the median house at the medium median job like we should have some limits on that until things are better and balance. I know there are people I've made this argument before who don't like it. They they think it's, you know, from a libertarian standpoint or whatnot, it gets in the way of free markets. But I think sometimes you do need guardrails in there, especially for major society priorities like letting your young families form. Um I'm just curious uh a do you have an opinion on this and b do you think we will see limits at some point in the story given affordability levels or not going to matter because natural market forces are starting to actually prevail and things are just going to get a lot more affordable because prices are going to you know go down dramatically. Yeah. So definitely have some thoughts on it and you know I think what I would ask is I would start with the foreign buyers too Adam there's no I mean when I was down in Miami I lived there for a couple of months in the summer of 23 I lived in a ghost condo and I was surrounded by ghost condos and you know some people think they're used for money laundering. Um you interviewed me in that ghost condo. Um and so it's just vacancy everywhere and these are foreign buyers um that are parking their money one way or the other. So I do believe in limiting that. Um I think though we're at a point where uh it's not going to matter much anymore. Market forces are taking over. But at a minimum our government government should not be u subsidizing this. And this is what's happening in the FHA program is people are committing what's called occupancy fraud by saying that they're going to occupy that home as a primary residence, but they don't. And nobody enforces that or checks it. If we did, meaning you're getting an FHA loan to to make a a housing investment and be a landlord and a VA loan. Yes. Um, I've I've met several veterans that use the VA program for this in Hawaii, which you you and I have talked about because I'm showing you how that is just a dumpster fire right now. Um, and so, yeah, the we have the rules that could help with I mean, FHA is supposed to promote first-time home buyers. The fact that we had the lowest first-time home buyers on record last year since they started tracking in the 80s tells you that that program isn't doing what it's supposed to be doing anymore. And so, yes, get the government out of housing. I So, I'm more I probably am more on the libertarian slant where it's like I would like for the free markets to work, but they're not free markets right now. The government is driving this market. And so to me, get them out or limit their role, um, and make them enforce, uh, you know, the guard rails that are there, uh, then we'd be way better off. But this housing market has not been about shelter for a very long time. And I recently did a piece, you may have read it, Adam, where I showed that even our own government doesn't see housing as shelter. They see it as investment. And and so, you know, I I think on our last show we talked about um you know, this housing market could correct all the way, meaning uh that that you know, it just it comes way down because there is going to be so much of it out there. You know, this would take decades. Um, but I don't know. Uh, we could really correct all the way to where uh this is based on whether people can truly afford it, which is going to be very different, which I mean, as painful as that would be, that's what you call a free market. And, you know, I'd love for it to get to that stage. Um, I I I I do worry and and I I won't spin off on this folks, I promise. But like this K-shaped economy that we're now increasingly in, the danger of moving to a lowercase I-shaped economy, which I talk a lot about, I do worry that as as wealth continues to concentrate, the people where that wealth concentrates, they've got to invest it and okay, you know, housing's a good, you know, asset to have in my diversified portfolio. And, you know, you just get more and more kind of aristocratic landlords out there. And um I I don't know that that that's one of the worries I have which is why I kind of feel like some guard rails you know are probably I think will probably be needed at some point but anyways people can debate that in the comments if they want. Um, so, uh, as you mentioned earlier, you alluded to earlier, um, yes, I have left California for Nevada. Um, and uh, uh, you know, um, it it was something that I I've been thinking about for a long time, but was interesting like many many major decisions in my life. Um, just events just kind of forced me to make it. It it it was something I was sort of spinning on for years, but you know, the reality was is the tax bill came this year and I signed the check and wrote it and then I asked my wife to sit down next to me and said, "Look, there's a whole bunch of reasons that we choose to live in California even though it's really expensive and da da da da, right?" And I said, "Okay, let's think about all the reasons why we want to stay here and pay the California premium." And then I showed her the number on the check and I said, "Is it worth this much?" and she just looked at me and said, "No, it's not." Right? And so that ju it just made the decision easy. And of course, once we made the decision, the attractions of moving that seemed like impediments before all of a sudden it was like, "Wow, there's actually even more reasons to leave than we initially thought." Right? So my point is or my question for you is is um you know in in many ways the system kind of loses with me making this decision decision. Now Nevada will benefit um but it's a 0% income tax state. So it's not going to benefit the way that California benefits from my income here. Now, it's obviously a net loss for California and not like, you know, Adam Tagert leaving the state is going to do much to the state of California, but there are a lot of people like me who have already made this choice. And I think I'm probably still at least in the middle, if not still a little closer to the front of the vanguard as these trends consider, there's just going to be a lot more mobile professionals who who leave as well. Um what are your thoughts on this dynamic of just I mean part of it is hey it's the free market it's capital going where it's better treated but I do feel like kind of net net you know there's going to be a lot of pain felt by the states that are you know really losing out from this migration. Yeah and I think we're starting to see it. I would agree with you that I think you're still early. I mean, but you know what? It's so funny when I went out to Los Angeles. I mean, I I just kind of you hear the sound from the the crowd that's like LA prices will never go down. Well, they are now, but it's like they've lost 150,000 households. Of course, there, you know, like we there's enough inventory and things are going to start to change over. And that's been going on, but I think it's going to accelerate even more. I mean, Adam, these people that got their home insurance bills that increase 40% and have no fire risk. And this is just because the way they you just had to spread the love around uh in California, similar to how in Boston right now, because the the city is suffering from lower uh income from commercial real estate income uh sorry, property taxes that they're putting that bill out to the consumer. So, absolutely. I I mean this is I I think Tennessee is going to be a destination for a very long time, but it's going to be slow because it's only going to be those that can really afford it. Unfortunately, a lot of people are trapped in their geographic locations. But yes, I think this outward flow is going to happen, you know, until those policies change. Okay. Um, well, it's going to be really interesting and folks, you know, I'm happy to share any thoughts from the front lines about my own personal experience. Um, all right. Well, look, I got to start wrapping it up here. And again, um, Melody, I'm I'm very excited for the update you're going to give at the fall online conference for a whole bunch of reasons, but but most importantly, I do get a sense talking to you here that the pace is picking up here now of of the rate of change in the housing market. Um, and so in the middle of October, I think we're going to have a lot more visibility into what 2026 is going to be like, but also I think a lot more visibility on just some of the trends that we're talking about here right now. Let let me let me end by kind of asking your thoughts on on this topic. Um I was interviewed the other day and um you know look I'm not an economic expert. Um I just talked to a lot of them and so people like to pick my brain to say hey Adam what's your synthesis of all this and I try to keep it simple so the average person can follow along. And basically I said, you know, I I'm I am concerned in the short term, like the next year or so. I think the economy is slowing and likely to continue to slow. I think there, you know, cracks in the job market that are concerning. Uh obviously these housing trends are very concerning. Um and so I'm I'm sort of bearish in the short term. I said I be I'm becoming more bullish in the midterm. Um, and it's a little squishy, but say the next 12 to 18 months to 36 months. And the reason for that is is whether you agree with them or not, the policies that the new administration is implementing um uh you know tax relief um uh you know striking hopefully better trade deals um driving reshoring American jobs here um securing presumably uh if reports are to believed you know trillions of of new investment in the country that would otherwise wouldn't have come and deregulating um working through whatever means they can to bring down borrowing costs. Um all of those things stimulate the economy and um to to just dismiss them because you don't like the administration and say those aren't going to make a difference I I think is just reckless. I think just being pragmatic, you have to say if they end up doing those things or at least to some material degree, it the economy is likely to to grow faster than it otherwise would. Right. Right. Um and then I say, look, in the long term, I'm still just as concerned as I've always been uh ever been about the debt and the deficits and the purchasing power of money and all that stuff. So, it's kind of like bearish bullish bearish, right? Um, but one of the things that makes me sort of that that challenges the the midterm bullishness would be if in two years like we're just in the raging depths of this housing, you know, crash that could could potentially happen. And I I don't use the word crash lightly, but I do think one of the last times we talked, you did say you think this correction in housing is going to be worse than the 2008 one. And if it is, yeah, then I could see that off offsetting a lot of of, you know, the potential benefits of those policies that I mentioned. So, I'm just curious, do you have any reaction or thoughts around that? Yeah, I thought the show you did with Darius and Luke was really excellent. And, you know, I as well have to think about that and um, you know, but I it's it's going to be a matter of timing. And after I listened to that show, actually, I was thinking a lot about how we could potentially see some pretty violent corrections here and then have a kind of pause and small appreciation maybe kind of like what you saw at the end of the 90s, early early 2000s before it went crazy. But then the demographic cycle is going to take hold really kicks in and really kicks in. But this is if the data we have is accurate, Adam, and my eyes are not and what I've seen is not true, which is all of this already existing vacancy out there. Um, and so I this is where, you know, I think we have to be just paying attention, you know, constantly watching the signs because anything could happen, you know, uh, if, for instance, uh, Trump loses here about the tariffs, that could be pretty gnarly. um you know if we had to pay that money back or whatever. Um so who knows what's going to happen but the underlying fundamentals are uh and by the way that BBB is going to it's going to be good for asset owners and things like that but not good for that very low end of the KRI if you want to call it that. But here's the thing, you know, Walmart almost 4% of its um you know of what it gets in is from SNAP shoppers. And so cutting SNAP means hurt to private profit. And so these things all have consequences. Less jobs and things like that. As well as I think that we're starting to see the AI narrative unravel. I I don't know about you, it's just like this is how these things happen, you know, gradually then suddenly, but it's like suddenly everyone has uh you know, an article out there about how we're in an AI bubble where there's been many, but I just posted on ex Twitter yesterday, Sam Alman saying, Exactly. Yeah, exactly. Sam Alman, right? You got to think why this, why now? But I mean, there have been those of us that have been arguing this is a bubble. I mean, I personally worked with uh large language models. I have that experience. Um, but it's suddenly everybody's talking about it and so we could really see and you know even though I'm a huge fan of Darius's, you know, really some short-term really painful corrections in certain stocks that could happen. And just to be clear, this is why I'm bearish in the near term, right? I mean, this is this is a component of why. Yeah. Right. So, we we shall see, right? I mean, we we don't know what's going to happen, but I can I can just I'm sticking to the fundamentals that ultimately uh we might get a pause in this uh because of all of those stimulus uh but it it will continue grinding down until we make that uh correction that I do believe is going to be worse than the GFC, but we'll have to just keep watching. Uh but the trend from this point um is really going to be down over the next 18 months. Okay. Um, and let me just ask you this. I'm asking you to guess here. And again, you're going to be on this channel repeatedly next time at the conference. Um, so you can always give us an audible update, but what is when does your gut tell you this isn't going to be a debate anymore? You're not going to be having to convince people. It's just going to be absolutely clear that we are in a housing correction that that very few people are going to get out of uh alive, you know. uh the industry is holding on for dear life. Although you hear uh you know news articles now about price corrections, but there but typically they all sound like ivy. Yeah, there's some short-term pain, but it's all going to be fine in the end. Um, I think uh even though that foreclosure not ever really a big part of my thesis, I think that as those continue to grow because of our recent memory um the boomer's recent memory, right, of what happened, I think that's when you're going to get largecale acceptance. And so I think that um you know by June of 2026 uh you will see um massive uh increases in those foreclosures. And you know, we've already seen a lot of increase in delinquency right now. And so this June, this this is very seasonal, but through the back half of the year, Adam, this is this mortgage uh delinquency only grows from here because uh people have run out of their tax refunds or bonus payments and there were they have to spend for school. I mean, you know, retail or spending is up. Well, yeah. I didn't have a choice about a lot of things I had to just purchase for the first day of school. Right. And the increases are mostly due to increase in prices. People aren't necessarily buying more things. Yeah. No. I paid like $20 for a 12-pack of pen, colored pens. Like, what? What? I mean, you know, there are some of these items where you're just like, this is insanity. You know, I think uh Walmart uh increased they did a survey of 50 items. They increased uh prices on 51% of them. this is really gonna start crushing. I mean, an already crushed bottom of the K, but it's gonna it's just moving up. And then you're seeing something on the bottom of the K, which kind of goes back to your aristocracy um theory, which I share those concerns, too, and I'm constantly watching them. But, uh us little folk, we we go and buy items from those asset holders or things like that. And when we can't do that anymore, uh you are going to have folks that uh on the superprime that come under stress as well as we haven't even started to see the real losses from commercial real estate. And we know there are a lot of rich limited partners out there that are going are about to get really really hurt, right? you know, unless uh they're able to dump all their crappy private equity and private credit holdings onto the retail investor with, you know, this new trend to try to let them do that, but that's that's a rant for a different day. All right. Um Melody, it is just always uh such a true joy to talk with you. So, um, quick reminder for folks, um, you'll see Melody next on this program, uh, at the Thoughtful Money Fall Conference, which is Saturday, October 18th. Um, we'll do a deep dive interview with Melody on the this all things housing then, but she'll also come on. She's very kind in in doing this uh, for about a half hour of just live Q&A. So, not only will you hear her update, but you'll be able to ask her whatever questions you want. And again, if you want to lock in the early bird price for that conference, just go to thoughtfulmoney.com/conference and sign up for it. Now, if you are a premium subscriber to our Substack, make sure you you look for the discount code that uh I've sent you by this point uh via email and uh you'll use that to get $50 off of that early bird price. Um all right, Melody. So, for folks that would like to follow you in your work um your excellent work at your Substack as well, where should they go? uh M3 Melody Substack. Um and then you can find me on X Twitter at M3_Melody or on YouTube at M3Melody. Right. Um Melody, can't thank you enough. Thanks so much for coming on. I really look forward to seeing you next at the conference. Thank you so much for having me and I can't wait. Thanks, Adam.
