Top Three Videos – September 13, 2023

Quick Summary Bullets:

Housing market challenges and risks

• “Last time, the institutionals came in and bought up a lot of these homes…I do think it’s probably going to be a cat five.”
• The housing market is facing a “Cat 5” storm worse than the Great Financial Crisis, with structural issues and an excess of inventory that is unaffordable for many Americans.
• We are all going to be hit like a Mac Truck when the housing market crisis hits due to credit crunch and liquidity shortages.
• “I really do believe that we are rounding the corner to that Runway being completely over.”
• The influx of shadow inventory in the housing market is expected to further drive down home prices and rental prices.
• The potential risk arises when the market flips and these investors start losing money on their thousands of units, leading to a sudden influx of hundreds of homes hitting the market within a short period of time and causing a significant drop in prices.
• Institutional buyers, who have been driving up housing prices, are now becoming net sellers, indicating a potential downturn in the housing market.
• The potential catalyst for the housing market storm may be the Super Prime investors who bought multiple properties, leading to potential distress selling in the future.
• The housing market is facing a potential crisis worse than the Great Financial Crisis, with people who took out interest-only loans now struggling to pay off the full amount due next month.
• The housing market is showing signs of distress, with borrowers giving up on their credit and facing financial hardships, potentially leading to a worse crisis than the Great Financial Crisis.

Lessons not learned from past financial crisis

• The foreclosure crisis in the last financial crisis was not solely caused by subprime loans, but also by affordability issues and credit quality degradation among prime borrowers.
• “Presumably there’s an end date on that though right I mean 100 they they have. They’ve spent the cost to build this thing right having it just sort of sit there not generating income depreciating needing maintenance stuff. Like that they they can’t do that forever. That’s not a profit. It’s not a way to run a business.” – There are concerns about the sustainability of holding built houses without generating income, as it is not a profitable long-term strategy.
• The housing market is showing dynamics that indicate we haven’t learned our lessons from the past financial crisis.
• Irresponsible lending practices, such as stated income or ninja loans, along with flawed assumptions made by technology tools used in loan origination, have contributed to the current housing market challenges.
• “Making an informed decision with the support of informed professionals versus just making a decision in the moment driven by emotion.”

Impact on affordability and accessibility

• Based on what I’ve seen, the housing market is built for the super rich and not affordable for ordinary Americans.
• “Only 23% of homes in the U.S are affordable to Middle income buyers…that number was 50% just last year.”

Transcript Summary:

The US housing market is facing a potential crisis worse than the Great Financial Crisis, with a lack of affordability, oversupply of inventory, deceptive tactics, and potential fraud.

• 00:00 The upcoming storm in the real estate market is predicted to be worse than the Great Financial Crisis, with a disconnect between data and reality, an abundance of luxury homes, and unaffordable new build sites for ordinary Americans.
  • Wright predicts that the upcoming storm in the real estate market will be worse than the Great Financial Crisis, specifically a category five storm, and discusses the previous involvement of institutional buyers in the market.
  • Wright, who has experience in the mortgage industry, believes that the current state of the US real estate market is similar to the period before the 2008 financial crisis, with various metrics making the situation appear better than it actually is.
  • Home prices may appear higher due to limited transactions, with conflicting reports on builder confidence, new home sales, pending sales, and existing sales, but the speaker believes that the current path of the housing market is not good based on their research, experience in mortgage finance and housing, and observations from being on the road in February.
  • Wright noticed discrepancies in the housing market and decided to visit various cities to see the large number of new build sites that were not reflected in the permit data or surveys.
  • The housing market is facing a severe crisis worse than the Great Financial Crisis, with new build sites being unaffordable for ordinary Americans and an abundance of luxury homes and spec homes.
  • The housing market is experiencing a disconnect between data and reality, with a surplus of inventory and structural issues due to the construction of homes for people who cannot afford them.
• 08:18 The US housing market is facing a severe crisis worse than the Great Financial Crisis, with a lack of affordability for middle-income buyers, an oversupply of housing inventory, and deceptive tactics used by home builders and realtors.
  • The housing market is experiencing a confusing time with conflicting opinions on recovery and decline, but the main issue is not a lack of inventory, but rather the lack of affordability for middle-income buyers, with only 23% of homes in the US being affordable to them.
  • There is an oversupply of housing inventory and a disconnect between supply and demand, with many units sitting empty and not selling, leading to a potential price adjustment problem.
  • The housing market is facing a severe crisis worse than the Great Financial Crisis, with the foreclosure crisis primarily affecting prime borrowers due to affordability issues and the construction of speculative homes.
  • Spec homes built for rent and short-term rental without contracts or certificates of occupancy may exist but are not widely known, as evidenced by numerous build sites in Round Rock, Texas.
  • New home salespeople are writing contracts for houses that may not be sold, just to meet monthly quotas, without considering if buyers can actually qualify for the loans.
  • Home builders and realtors use deceptive tactics such as using different color stickers and staging homes to make it appear as if they are sold, raising concerns about the housing market.
• 15:09 The housing market is facing a potential collapse due to poor technology, lack of transparency, and potential fraud, with high-priced homes being falsely claimed as sold and builders hiding their true financial situation.
  • Wright highlights the poor technology and lack of transparency in the mortgage industry, leading to uncertainty about the reported inventory shortage in the housing market.
  • She discusses the issue of high-priced homes being built in subdivisions, particularly in Austin, Texas, and highlights the lack of information on the impact of local private builders.
  • The housing market is facing significant challenges due to poor technology, labor shortages, credit crunch, liquidity shortages, and potential fraud, making it difficult to assess the true nature of the market.
  • Many spec homes in Austin are being built on the higher end of the affordability spectrum, but the companies building them are falsely claiming that they are sold when they actually don’t have a buyer.
  • The housing market is facing a potential collapse as financials are not matching the narrative, with private builders becoming net sellers and the drug of gain on sale being used to cover losses.
  • New builds are expected to have a significant price reduction and various incentives due to the 10-year running up, but builders may be hiding their true financial situation through cost modeling and not selling certain projects.
• 23:10 The housing market is facing a potential crisis worse than the Great Financial Crisis, with builders preparing for a hard landing as transactions decrease and future demand is pulled into the present through incentives and mortgage discounting.
  • National builders can use their cost model to value unsold homes as just land, allowing them to avoid fair market value and taxes, but this is not a sustainable or profitable way to run a business.
  • The housing market is facing a severe crisis worse than the Great Financial Crisis, as margins are being crushed, new home sales are down, and the narrative is fading, leading to potential market decline by October or November.
  • The housing market is facing a potential crisis worse than the Great Financial Crisis, with builders preparing for a hard landing as transactions decrease and future demand is pulled into the present through incentives and mortgage discounting.
  • The average price of new homes has dipped below existing homes due to affordability and incentives, similar to the dynamic in the auto market, indicating a potential downturn in the housing market.
  • There is a discrepancy between the publicly available data on MLS listings and the actual number of homes for sale, with Zillow and Redfin having fewer listings than realtor.com, and there are additional factors such as pocket listings and properties sold through social media that contribute to the lack of understanding in the housing market.
  • Existing homes and new build homes are not being accurately reflected on MLS sites, with only a small percentage of available units being listed, which could indicate a potential housing market crisis.
• 35:57 The housing market is at risk of a severe downturn worse than the Great Financial Crisis, with excess inventory, deep-pocketed investors, and concerns about overbuilding, indicating a potential crash in prices.
  • There is a significant amount of inventory in the housing market that is not being accurately reflected, with deep-pocketed corporations like Blackstone and private equity firms contributing to the surge in corporate capital in the residential housing market.
  • Rents and home prices are expected to decrease further due to the excess inventory in the market, including shadow inventory, which will pull down sale and rental prices.
  • Deep-pocketed all-cash investors buying housing inventory at higher prices than average consumers, with the ability to borrow at cheaper rates and enjoy economies of scale, pose a significant risk as their potential loss of money on thousands of units could lead to a sudden influx of homes on the market and a subsequent crash in prices.
  • Institutional buyers, who have been influential in raising housing prices, have now become net sellers, except for one deal, indicating a potential downturn in the housing market.
  • The housing market is predicted to experience a severe downturn worse than the Great Financial Crisis, with concerns about empty homes and overbuilding by companies like Lennar.
  • No one in the housing market has learned their lessons and there are many things happening that they don’t understand.
• 43:55 The housing market is heading towards a severe crisis worse than the Great Financial Crisis, with inflated credit scores, risky loans, and government intervention causing concerns about repurchase requests and unfair practices.
  • Credit scores are inflated due to factors like medical debts and student loans not being considered, and the housing industry now heavily relies on government-sponsored Enterprises (GSE) for mortgage support.
  • The housing market is facing a potential crisis due to the increase in non-qualified mortgages and the government’s role in approving loans based on inflated credit scores, leading to concerns about repurchase requests and the unfair practices of government-sponsored entities.
  • The housing market is facing a severe crisis worse than the Great Financial Crisis, as certain dynamics show that lessons have not been learned and people are not paying attention.
  • The speaker predicts a significant correction in the housing market, possibly lasting for multiple years, due to various factors including the upcoming election.
  • The housing market is facing an affordability crisis, with government intervention and assistance programs likely to be implemented, and the catalyst for the crisis may be the Super Prime investors who bought multiple properties.
  • The housing market is facing a potential crisis due to risky loans, short-term rental investments, and the rise in interest rates, with both institutional and individual investors being affected.
• 52:05 The housing market is heading towards a severe crisis worse than the Great Financial Crisis, with potential distress for borrowers, a collapse in the super prime segment, and a focus on subprime that misses the bigger picture.
  • The housing market is facing a severe crisis due to the inability to refinance, lack of liquidity, and irresponsible lending practices, which may result in a prolonged downturn.
  • Wright predicts that the housing market is heading towards a severe crisis worse than the Great Financial Crisis, with borrowers experiencing distress and a potential collapse in the super prime segment, while the focus on subprime misses the bigger picture.
  • There is a surge in delinquencies in the housing market, but foreclosures will likely not increase until the end of Q1 or Q2 due to the lengthy process of putting a loan into default after the Great Financial Crisis.
  • The housing market is predicted to face a severe crisis worse than the Great Financial Crisis, with the potential for a recession and job losses, as well as the possibility of credit events caused by the liquidity shortage of non-bank mortgage lenders known as shadow banks.
  • The housing market is facing a severe crisis worse than the Great Financial Crisis, with increasing expenses and a lack of awareness among industry professionals.
  • Wright predicts that the upcoming storm in the real estate market will be worse than the Great Financial Crisis, specifically a category five hurricane, and suggests that people should pay attention to the situation.
• 01:00:09 Seek professional advice and make informed decisions in the current housing market, as significant changes are expected and emotional decisions should be avoided.
  • Melody Wright can be followed on Twitter, LinkedIn, Substack, and YouTube, where she aims to respond to everyone and emphasizes the importance of making informed decisions with professional support rather than acting impulsively.