For weeks now, low, heavy clouds fat with water have hung over East TN. Every few hours they release their baggage and a deluge of water pours down, soaking the hills. In the mornings a magical mist encircles the smoky-colored mountains while humidity fogs the windows of the farmhouse. The garden has been ravaged by every moisture-related ailment you can imagine. Despite that, the harvest has been plentiful, though at times it seemed as if the rain would wash away the fruits of my labor entirely. Build, release, forage. The mood mirrors that of the one on social media and in the news. Expectation of war or not-war, missiles fly, markets march on picking up the dropped fruit left behind by those seemingly making bank.
Such is the summer of 2026. The midterm elections loom, and as discussed last week we are hunkering down in preparation. The jobs report indeed surprised to the downside providing cover and plausible deniability for inaction or action by the Fed. Meanwhile members of the administration deny the plight of millions of Americans, especially those who have dropped out of the workforce. The labor force participation rate is at its lowest since women started joining the workforce at scale in the 70s.
The stock market snoozed right through the report, leaving traders to sun and fun in the Hamptons. The 10-year treasury lurched in the following days, settled back down to the 4.6 range and then rose again to end the week closer to 4.7, landing 30-year mortgage rates at 6.71%. The 30-year treasury on the other hand hit its highest yield since July 2007. For an excellent discussion of King Bond Market, I recommend watching this breakdown from Darius Dale and Adam Taggart's Thoughtful Money®. The Japanese yen as well struggled despite performed support by the United States. Weston Nakamura provides an excellent analysis of the latest episode of the Japan/U.S. soap opera and provides an on-the-ground read that I believe is unparalleled.
Weston’s analysis shows the administration’s level of sophistication with respect to media market manipulation. Just write a little note that everyone can see and you don’t have to do a doggone thing…for a bit.
Meanwhile we have received both existing home sales and early reads from Redfin for July. Both of these entities are now providing information much earlier in the month. Non-seasonally adjusted both series showed an increase from last year’s abysmal sales which were the lowest July sales since 1999 besides 2010, 2011 and 2023. For perspective we have increased population by 13% since the GFC. Month-over-month (MoM) sales were down -5.66% in the NAR series as expected due to exiting the season in July. Since 1999 sales on average decrease -5.32% from June to July. July’s sales were -16.01% below the average, -19.84% lower than July of 2007 and -4.31% lower than July of 2008. NAR also reported that sales in the +$1M price tier were up 14.8% YoY when most Americans cannot afford a $300K house.
How long can this madness persist? Everyone is tired of waiting, tired of hunkering down, tired of scampering and foraging. Timing is impossible but we are seeing many signals. One of my clients who has been in the mortgage business for 40 years is getting out completely having braved the S&L crisis and the GFC. United Wholesale is on the brink of breaching tangible net worth covenants. Realtors, brokers, flippers are pivoting to other professions or plays including short sales. When will this cycle make its final turn on the national stage? Likely when most realize that there is not enough power or money for the datacenters that have been planned.
Once that realization occurs, many of those 26,000 construction workers in New Albany, OH and on other sites across the country will be forced to go home. Only then will this most recent land cycle come to a close. My best guess for this realization will be after the election. There will be fireworks in the fall especially as the hard debt maturity wall for commercial real estate comes crashing down and as private credit continues to come under stress. October is always a spicy month in the markets and close enough to the election for people to be too confused to change their minds. We will finally see the new foreclosures impact Case Shiller by perhaps December or January. Those foreclosures will continue to ramp from here, increasing their impacts to the series. For example, the foreclosure sale I shared in my last post occurred on July 28th. Redfin would not have that sale in its July results (as of August 3rd) as the deed has not yet recorded. Price cuts are increasing, but those homes have to sell for the national numbers to be impacted. Redfin reports there are now more sellers than buyers since they started tracking.
Patience has never been my strong suit. But, as the clouds oppress, I continue to research, seek knowledge and understanding. I recommend that for those who feel the same.
As such this week I spent time scouring United Wholesale’s financials. Some of you may remember my article about UWM, the #2 lender in the United States by count, in April of 2024. My issues with UWM go back much further than 2024. It was clear in 2021, for instance, they were headed for danger. Their business model was laughable to me but that didn’t stop them from trying to find every borrower out there they could to enter the gates of debt slavery. Now, the rooster has come home to roost. For today’s post, I will focus on exactly what I saw in their financials as well as detailed results for sales, price and inventory for July for both NAR and the M3 series. Additionally, I will share my latest Unicus Research piece on commercial real estate which discusses how your mainstream analysts surf the cycle, never giving you the actual information you need to make informed decisions. Even those who were the contrarians of days gone by have been coopted by complacency or money and now play the same game. Finally, I will give you an early peak into July delinquency. For those who cannot join us below, I must leave you with this - there have never been more signals that the jig is up. Does that mean it happens tomorrow? No. It means that unless we all start making a lot more money, this ship has only one place to go. And, on that note:
Let’s begin…
