Appreciate you. I'm a consultant in the building products industry, and have never seen so much complacency in my life. Beyond the early 2000's crazy. Hiring, spending, etc like this will never end. Linear planning. It's hard to be the only one who thinks "you might want to be careful".
And, thank you for reading and commenting and helping to make me feel a little saner. It's just so hard for me to understand. It's like most everyone is asleep.
My brother is a mortgage broker for a regional bank in the midwest. He told me the other day all he does is refinance customers going through divorce. Nothing else. 😞
Great stuff Melody. I read RudyH so that’s how I found your substack.
Spek, I can confirm I heard the same from a title officer when I sold a rental earlier this summer. Title officer said volume on avg went from 100 closing per month in 2021/1H 2022 to 30 as of June 2023 and her firm had layoffs and reduced offices earlier in the year. Said a lot or her volume now was due to Divorce and previously large portion was refinancing.
Related but seperate I just started seeing RVs and cars with for sale signs on them, which were very rare the last 2 yrs near me and were likely sources benefiting with the cash inflows from those refinancings. Anyone know who owns the issued RV debt/notes on 10-20 yr terms and how to short it?
That looks like it will get wrecked during a housing crises.
Insightful, as always. My contention has always been that the underpinning of the GFC began way back in 1968, with the passage of the Fair Housing Act. What grew out of that law, and subsequent laws passed during multiple administrations over the next decade, was the fuel and the fuse, as the government pushed ever harder with carrots and sticks, to essentially force lenders to lower their loan quality to make housing more ‘equitable’.
Then, in 1999, the repeal of Glass Steagall lit the fuse and it was off to the races, so to speak.
Smart money today is just sitting in cash and gold, on the sidelines, exercising caution and lots of patience. The question is, will it matter.
You have raised the issue multiple times, to wit, what will the government response be when it becomes clear that the “oh but it’s different this time” crowd actually got the ‘different’ part correct…but they were directionally off by 180 degrees. And it turns out to be different, and much, much worse.
Thank you! The repeal of Glass Steagall to me was definitely the match. And, I agree about them pushing home ownership rates. Historically, they always revert back through the corrections. I so appreciate the history and the perspective.
Thanks. They do always revert, going all the way back to the land speculations of the early 1800s. The kind of stuff one should learn in school, but most never do. I certainly didn’t, it was only after becoming a GFC victim that I figured I better study some history to make sure I wasn’t a victim a 2nd time.
What is crazy to me is the level of hubris that most zoomers and hoomers seem to have, that it can’t happen again or that it can’t happen to them.
A lot of brutal outcomes await.
Another thing that interests me. Our first house was 76k in 1983. 16% rate and .5PMI w/10% down. Our payment was around 1300. Adjusted for inflation, that’s $4000. A payment that today very few could afford. Which I guess demonstrates how really awful wage growth has been over the past 40 years, relative to the increased cost of everything else.
Great intel. Important to recognize we will never see the specific catalyst for crash beforehand, just the probability distribution of likely outcomes. In early stages of GFC people argued things like 1 in 5 subprime borrowers in arrears, weakened UW standards didn’t matter bc of house price appreciation. Smarter people realized the risk/reward was skewed - these factors meant that IF we saw house prices reverse modestly, it would detonate the capital structure of private MBS.
Today I hear similar arguments that affordability and 7.5% rates don’t matter because employment is strong. My opinion is IF we see a modest downturn in employment the stretched conditions you astutely point out mean it’s quite likely we unroll the entire 2020-2022 house price appreciation.
Maybe it won’t happen but the risk/reward doesn’t look too great.
Thank you so much for reading and the kind words. I honestly believe with the amount of leverage out there and the shortage in the shadow banking sector, we might soon have a credit event that will spur that issue in employment. But, with what I'm seeing here in Florida with the increases in insurance and taxes....we might not even need that. Will take longer, but these increases are insane! But, as you say, we will see. There is so much going on it is hard to say.
Brilliant and no; you're not crazy nor a doomer. Guess where I'm writing this comment from?
The front porch of my Zombie house.
One of four rentals I used to own (no bad paper) for this one's poorly written contract which I did not catch - so that's on me.
I lost 1/2 million in the GFC.
Took a brutal self-inventory of where I went wrong, found mistakes but they did not add up to catastrophic loss. That was the day in 2012 I took a brutal inventory of this entire financial culture & it's structures.
My, my, my well look at that...
The Big Short isn't 'just' a movie, I've lived it.
Remember the Note fad? The sellers sold their Note 30 days after we closed (in 2006 should, have caught that)and in 2019 I was alerted that my name was still on the title after BR in 2012 and was going for tax foreclosure. 5 banks ended up on the Title. $15,000 in back taxes and $5,000 dollars later, 2020- March of this year the title is clear and in my name only.
The roof failed in 2 valleys during 8 years of zombie neglect and the lawyer and I Never Found A Single Person or Bank to Serve during the process.
None of this type of fraud has gone away. It's rampant throughout the US.
Thank you so much for reading and the intelligence. Wow, what an odyssey. There is so much of this stuff out there....the attorneys will get rich again. One of my attorneys from the GFC named his boat GMAC. The amount of deed flipping and fraud just got worse in my opinion, so it is going to be interesting (putting it mildly).
Terrific work as always Melody. I'm a 25 year veteran of real estate investing, discounted note buying, hard money lending, and conventional mortgage lending (stopped conventoonal lending in 2015). So I have been paying close attention to the RE market for a long time. The interesting thing to me is even the "rebel type" non mainstream, non consensus analysts I know this time do not see a real estate crash or melt down ahead. For example Bill McBride from Calculated Risk. He does not have any corporate conflicts of interest (like say Black Knight and WSJ might have). There is no reason for him to cheerlead the housing market. But appears to be very sanguine, and not calling for a crash. Bill has been blogging since 2004 and nailed the 2008 crash. And more importantly, he called the recovery in 2012 (which NOBODY did...ever7one I knew in 2012 that had been in the business a long time was still uber bearish on RE in 2012, and most got the next 10 year run up in prices totally wrong.
Incluiding myself for the most part).
And there are other people that I know that are super sharp builders, investors, note buyers, etc... - that nailed the last crash, that do not seem to see a crash this time. It's Pretty much you Melody and Nick Girli are the only two people I know of that are really warning of a real estate crash. Interesting!
I have to say I just don't know this time on crash or no crash. For sale listed inventory is so much lower than it was in 2006, 2007 leading up to the last crash. Despite the USA population being 300million in 2006 and now it is 332 million in 2023. So we have 32 million more people and about what only 1/3rd of the listed inventory that we had in 2006/2007? And I also just do no see the USA having the skilled workforce in the building trades, and thus capacity to pump out sufficient numbers of new housing going forward.
But then again, I would not be surprised if things crash and we get a lot of distress. Because I have thought since 2010 the US economy has been built on a house of cards of 0% rates and FED and US treasury stimulus. So the next 2 years should be interesting!!
Hi there....thank you so much and I appreciate all insights. So, as you can tell I've been paying close attention as well since long before and am big fans of Zelman and McBride. I pretty much agree with them on everything except for what I see happening next. And when I realized I was nowhere near the consensus that is why I went on the road. I think what Bill and Ivy don't have a view of is the small, private builders and the cottage industries that sprung up around Airbnb/STR rental as well as how crazy Built-to-Rent went. You had properties built and sold without ever making it to a MLS site....and there seems to be a lot of permitting fraud. I think we will look back and realize something really weird was happening to the Survey of Construction due to labor shortages and delays for recording permits at the county. It's the only way I can explain what I saw with my own eyes and what the permit data shows. When I left Austin in February I was sick to my stomach and have STILL not seen these numbers show up. I was working with a reporter on what we thought was slow-rolling by the builders but then the banking crisis happened. I think what some builders are doing is either -1) not listing 2) listing one home when there is a whole subdivision 3) listing one home on zillow and then one home on realtor....And, the more I dig into the MLS sites the more you realize they only ever had about 60-70% of the listings. Anyway - I could go on and on, but I don't know how we escape what I saw on the road. And the demographic picture is very different as well. You probably saw this, but in case you didn't - https://www.jchs.harvard.edu/blog/surge-household-growth-and-what-it-suggests-about-future-housing-demand. Layer on the multifamily in progress....I'm seeing big moves in occupancy....it's the whole picture. Most are using the old view and aren't really thinking through how boomers and their kids won't be able to carry 2nd and 3rd homes....and we have 15M vacant homes at the moment. There are so many vacant homes. But, it all takes time. I do wish to be wrong but at the very least we have a huge mismatch between what is being built and what people can afford - a bunch of structural issues we will have to sort out. And, of course the UFOs could come and give us pay raises :). I'm not sure what will happen either, but I can tell you from the fraud I'm seeing alone, there is a lot of trouble ahead (but not for the attorneys who will get rich). Please keep me updated on what you see and thank you again!
Thank you Melody for your response. And again, can't tell you how much I love what you are doing with your writing. You are doing some creative niche research, and you are getting out on the road into the real world (which most housing analysts do not do!).
I actually hope that you are right, and we do see a downturn in house prices and rents. Yes it may hurt some. But it will help more. I would love to see more first time home buyers and working families able to afford houses and less of a dysfunctional housing market. The flip side to the GFC was great affordability from 2009-2014.
IDK if you've read the book "Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon."
The authors cover the causes of the 2008 crash in a very detailed way.
I pointed out back then how it was odd, with all the foreclosures, apartment rentals never increased proportionately -- because the majority of mortgages were people trying to flip houses. They lied, said it was their primary residence, and took out interest only loans. Those people just let the houses go, because they never lived in them anyway.
Meanwhile the mortgage backed securities used as leverage for insurance companies went to crap overnight.
I don't think *that* part will be the same, but I agree with you. A lot of those home purchases were for cash, borrowed from investors.
The question I had was, where were those buyers when the market would have maximized profits?
Damn that was good... You can shout your lungs out from the rooftops but if people don't want to hear the message they won't.
It's a very elementary argument, but when I hear speak of a soft landing or no landing, that would imply that the Fed nailed it and got everything right. And when the hell is the last time that ever happened?
It would almost be better if the Fed were to say everything is going to be horrible, because then things probably wouldn't be too bad.
With everything I see not making sense, this does.
Thank you!
Appreciate you. I'm a consultant in the building products industry, and have never seen so much complacency in my life. Beyond the early 2000's crazy. Hiring, spending, etc like this will never end. Linear planning. It's hard to be the only one who thinks "you might want to be careful".
And, thank you for reading and commenting and helping to make me feel a little saner. It's just so hard for me to understand. It's like most everyone is asleep.
My brother is a mortgage broker for a regional bank in the midwest. He told me the other day all he does is refinance customers going through divorce. Nothing else. 😞
Great stuff Melody. I read RudyH so that’s how I found your substack.
Thank you so much for the kind words and for reading! Yes, with rates and home prices where they are it’s going to be frozen until acceptance.
Fantastic detailed Article Melody!
Spek, I can confirm I heard the same from a title officer when I sold a rental earlier this summer. Title officer said volume on avg went from 100 closing per month in 2021/1H 2022 to 30 as of June 2023 and her firm had layoffs and reduced offices earlier in the year. Said a lot or her volume now was due to Divorce and previously large portion was refinancing.
Related but seperate I just started seeing RVs and cars with for sale signs on them, which were very rare the last 2 yrs near me and were likely sources benefiting with the cash inflows from those refinancings. Anyone know who owns the issued RV debt/notes on 10-20 yr terms and how to short it?
That looks like it will get wrecked during a housing crises.
Thanks for the reply. Good information.
I don’t know who owns the paper on RV debt/notes, but I couldn’t agree more. Great trade if you can find it. Calling Dr. Michael Burry. 😂
Insightful, as always. My contention has always been that the underpinning of the GFC began way back in 1968, with the passage of the Fair Housing Act. What grew out of that law, and subsequent laws passed during multiple administrations over the next decade, was the fuel and the fuse, as the government pushed ever harder with carrots and sticks, to essentially force lenders to lower their loan quality to make housing more ‘equitable’.
Then, in 1999, the repeal of Glass Steagall lit the fuse and it was off to the races, so to speak.
Smart money today is just sitting in cash and gold, on the sidelines, exercising caution and lots of patience. The question is, will it matter.
You have raised the issue multiple times, to wit, what will the government response be when it becomes clear that the “oh but it’s different this time” crowd actually got the ‘different’ part correct…but they were directionally off by 180 degrees. And it turns out to be different, and much, much worse.
Time will tell.
Thank you! The repeal of Glass Steagall to me was definitely the match. And, I agree about them pushing home ownership rates. Historically, they always revert back through the corrections. I so appreciate the history and the perspective.
Thanks. They do always revert, going all the way back to the land speculations of the early 1800s. The kind of stuff one should learn in school, but most never do. I certainly didn’t, it was only after becoming a GFC victim that I figured I better study some history to make sure I wasn’t a victim a 2nd time.
What is crazy to me is the level of hubris that most zoomers and hoomers seem to have, that it can’t happen again or that it can’t happen to them.
A lot of brutal outcomes await.
Another thing that interests me. Our first house was 76k in 1983. 16% rate and .5PMI w/10% down. Our payment was around 1300. Adjusted for inflation, that’s $4000. A payment that today very few could afford. Which I guess demonstrates how really awful wage growth has been over the past 40 years, relative to the increased cost of everything else.
Great intel. Important to recognize we will never see the specific catalyst for crash beforehand, just the probability distribution of likely outcomes. In early stages of GFC people argued things like 1 in 5 subprime borrowers in arrears, weakened UW standards didn’t matter bc of house price appreciation. Smarter people realized the risk/reward was skewed - these factors meant that IF we saw house prices reverse modestly, it would detonate the capital structure of private MBS.
Today I hear similar arguments that affordability and 7.5% rates don’t matter because employment is strong. My opinion is IF we see a modest downturn in employment the stretched conditions you astutely point out mean it’s quite likely we unroll the entire 2020-2022 house price appreciation.
Maybe it won’t happen but the risk/reward doesn’t look too great.
Thank you so much for reading and the kind words. I honestly believe with the amount of leverage out there and the shortage in the shadow banking sector, we might soon have a credit event that will spur that issue in employment. But, with what I'm seeing here in Florida with the increases in insurance and taxes....we might not even need that. Will take longer, but these increases are insane! But, as you say, we will see. There is so much going on it is hard to say.
Brilliant and no; you're not crazy nor a doomer. Guess where I'm writing this comment from?
The front porch of my Zombie house.
One of four rentals I used to own (no bad paper) for this one's poorly written contract which I did not catch - so that's on me.
I lost 1/2 million in the GFC.
Took a brutal self-inventory of where I went wrong, found mistakes but they did not add up to catastrophic loss. That was the day in 2012 I took a brutal inventory of this entire financial culture & it's structures.
My, my, my well look at that...
The Big Short isn't 'just' a movie, I've lived it.
Remember the Note fad? The sellers sold their Note 30 days after we closed (in 2006 should, have caught that)and in 2019 I was alerted that my name was still on the title after BR in 2012 and was going for tax foreclosure. 5 banks ended up on the Title. $15,000 in back taxes and $5,000 dollars later, 2020- March of this year the title is clear and in my name only.
The roof failed in 2 valleys during 8 years of zombie neglect and the lawyer and I Never Found A Single Person or Bank to Serve during the process.
None of this type of fraud has gone away. It's rampant throughout the US.
Thank you so much for reading and the intelligence. Wow, what an odyssey. There is so much of this stuff out there....the attorneys will get rich again. One of my attorneys from the GFC named his boat GMAC. The amount of deed flipping and fraud just got worse in my opinion, so it is going to be interesting (putting it mildly).
Terrific work as always Melody. I'm a 25 year veteran of real estate investing, discounted note buying, hard money lending, and conventional mortgage lending (stopped conventoonal lending in 2015). So I have been paying close attention to the RE market for a long time. The interesting thing to me is even the "rebel type" non mainstream, non consensus analysts I know this time do not see a real estate crash or melt down ahead. For example Bill McBride from Calculated Risk. He does not have any corporate conflicts of interest (like say Black Knight and WSJ might have). There is no reason for him to cheerlead the housing market. But appears to be very sanguine, and not calling for a crash. Bill has been blogging since 2004 and nailed the 2008 crash. And more importantly, he called the recovery in 2012 (which NOBODY did...ever7one I knew in 2012 that had been in the business a long time was still uber bearish on RE in 2012, and most got the next 10 year run up in prices totally wrong.
Incluiding myself for the most part).
And there are other people that I know that are super sharp builders, investors, note buyers, etc... - that nailed the last crash, that do not seem to see a crash this time. It's Pretty much you Melody and Nick Girli are the only two people I know of that are really warning of a real estate crash. Interesting!
I have to say I just don't know this time on crash or no crash. For sale listed inventory is so much lower than it was in 2006, 2007 leading up to the last crash. Despite the USA population being 300million in 2006 and now it is 332 million in 2023. So we have 32 million more people and about what only 1/3rd of the listed inventory that we had in 2006/2007? And I also just do no see the USA having the skilled workforce in the building trades, and thus capacity to pump out sufficient numbers of new housing going forward.
But then again, I would not be surprised if things crash and we get a lot of distress. Because I have thought since 2010 the US economy has been built on a house of cards of 0% rates and FED and US treasury stimulus. So the next 2 years should be interesting!!
Hi there....thank you so much and I appreciate all insights. So, as you can tell I've been paying close attention as well since long before and am big fans of Zelman and McBride. I pretty much agree with them on everything except for what I see happening next. And when I realized I was nowhere near the consensus that is why I went on the road. I think what Bill and Ivy don't have a view of is the small, private builders and the cottage industries that sprung up around Airbnb/STR rental as well as how crazy Built-to-Rent went. You had properties built and sold without ever making it to a MLS site....and there seems to be a lot of permitting fraud. I think we will look back and realize something really weird was happening to the Survey of Construction due to labor shortages and delays for recording permits at the county. It's the only way I can explain what I saw with my own eyes and what the permit data shows. When I left Austin in February I was sick to my stomach and have STILL not seen these numbers show up. I was working with a reporter on what we thought was slow-rolling by the builders but then the banking crisis happened. I think what some builders are doing is either -1) not listing 2) listing one home when there is a whole subdivision 3) listing one home on zillow and then one home on realtor....And, the more I dig into the MLS sites the more you realize they only ever had about 60-70% of the listings. Anyway - I could go on and on, but I don't know how we escape what I saw on the road. And the demographic picture is very different as well. You probably saw this, but in case you didn't - https://www.jchs.harvard.edu/blog/surge-household-growth-and-what-it-suggests-about-future-housing-demand. Layer on the multifamily in progress....I'm seeing big moves in occupancy....it's the whole picture. Most are using the old view and aren't really thinking through how boomers and their kids won't be able to carry 2nd and 3rd homes....and we have 15M vacant homes at the moment. There are so many vacant homes. But, it all takes time. I do wish to be wrong but at the very least we have a huge mismatch between what is being built and what people can afford - a bunch of structural issues we will have to sort out. And, of course the UFOs could come and give us pay raises :). I'm not sure what will happen either, but I can tell you from the fraud I'm seeing alone, there is a lot of trouble ahead (but not for the attorneys who will get rich). Please keep me updated on what you see and thank you again!
Thank you Melody for your response. And again, can't tell you how much I love what you are doing with your writing. You are doing some creative niche research, and you are getting out on the road into the real world (which most housing analysts do not do!).
I actually hope that you are right, and we do see a downturn in house prices and rents. Yes it may hurt some. But it will help more. I would love to see more first time home buyers and working families able to afford houses and less of a dysfunctional housing market. The flip side to the GFC was great affordability from 2009-2014.
Excellent piece!
IDK if you've read the book "Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon."
The authors cover the causes of the 2008 crash in a very detailed way.
I pointed out back then how it was odd, with all the foreclosures, apartment rentals never increased proportionately -- because the majority of mortgages were people trying to flip houses. They lied, said it was their primary residence, and took out interest only loans. Those people just let the houses go, because they never lived in them anyway.
Meanwhile the mortgage backed securities used as leverage for insurance companies went to crap overnight.
I don't think *that* part will be the same, but I agree with you. A lot of those home purchases were for cash, borrowed from investors.
The question I had was, where were those buyers when the market would have maximized profits?
http://winduprubberfinger.com/blog1.php/2022/03/30/foreign-investors-in-the-housing
Damn that was good... You can shout your lungs out from the rooftops but if people don't want to hear the message they won't.
It's a very elementary argument, but when I hear speak of a soft landing or no landing, that would imply that the Fed nailed it and got everything right. And when the hell is the last time that ever happened?
It would almost be better if the Fed were to say everything is going to be horrible, because then things probably wouldn't be too bad.
Thank you ☺️. And agreed. It’s going to make it so worse that everyone will be surprised - caught unaware.
Thank you for the excellent analysis. It certainly feels like 2006 all over again.
Thank you so much and thank you for reading.
Prescient words Melody. Keep writing and informing, we are listening.
Thank you so much! Will do.
Thank you so much. I haven’t read that but I will put it in the queue. Will check out your piece this weekend as well :).