The Market Shift Coming Next Will Shock Most People | Real Estate Notes Show

Episode: Housing Expert: The Market Shift Coming Next Will Shock Most People | Melody Wright Dave's Goals and Plans: - Seeing more non-performers coming through the pipeline - Ability to create notes has been shrinking compared to the past - Acknowledging previous predictions about market timing may have been wrong - Learning from guests who know more about different market sectors Nathan's Goals and Plans: - Observing restrictions on note creation while simultaneously seeing reports of record seller finance notes - Monitoring car loan delinquencies as a canary-in-the-coal-mine indicator for mortgage market - Tracking credit card debt and household income trends as triggers for industry-wide impacts - Noting REO asset sales have slowed from 10 days to 90-120+ days Key Recommendations: - Watch car loan delinquencies and credit card debt as leading indicators of mortgage market stress - Monitor note creation volumes and delinquency rates across different regions - Be prepared to pivot and change directions quickly given market uncertainty - Track sales below $250 price tier as indicator of broader market correction Topics Discussed: - Insurance costs skyrocketing (50% increases, especially in California) - Home depreciation with 53% of homes losing 9.6% value - 50% of recent home sales occurring outside MLS - Return of short sales in the market - Rising mortgage rejection rates (43%+ rejections) - Debt-to-income ratio constraints limiting buyer eligibility - Note creation and seller financing market dynamics - Rising delinquencies in consumer debt products Guest Insights: - 2024 was worst sales year since 1995 despite 20% population increase - Only top 1-10% of buyers currently transacting, creating artificial price support - New home builders offering ~$50,000 in incentives and using accounting tricks with seller concessions - New home median prices have fallen below $400k with more declines coming seasonally - 31 of 85 tracked markets showing year-over-year price declines (double from previous year) - Market needs more transactions in sub-$250k price tier to establish accurate price discovery - April tariff announcements caused housing market to screech to halt after strong December momentum Wow, what a show we have today for you guys.

Uh we have Melody Wright on here, me and Nathan to have an awesome conversation with her and it's something we're not used to hearing a lot of times, the real truth. Uh Melody writes the third time coming on. U Nathan, what are some of the takeaways that you have from this call that are amazing? I mean, my head still. >> Holy smokes, she's always so much information having come on and and it's it's fire hose. So, so you know, if you're watching it, you tune in for sure. You don't want to miss it, but then it's okay if you play it back at like half speed or something like [laughter] that or or go back and watch it a couple of times.

Uh, we talked about insurance. We've got some notes over here. We talked about insurance and how insurance costs have just skyrocketed over the last few years and that is really hurting people in >> 50%. >> 50%. Holy cow. So, it's major major increases. California being one of the biggest states because of the fires. >> So, so something to be aware of and that's she's talking about like why that's affecting and how that's affecting uh home sales because people literally just can't afford it anymore. They're with the insurance and everything else. >> Talking about uh equity problems. We're talking about um Zillow was talking said that 53% of houses have lost more than 9 and a half% of value.

>> And and I can tell you that's area specific. We're we're in experiencing that right now where we're having um price drops in certain areas and things and so that's been a big difference as well. >> Absolutely. And then talk about the fact that market reality right 50% of recent home sales have happened outside the MLS. So these aren't going through the traditional people that you can look on, you know, difficult MLS sites and get comps and stuff. Um, which is hard to track what's doing what in areas >> and other and if it's off the MLS, is that seller finance or how is that being sold? >> And then welcome back is short sales.

Holy goodness, what's happening here? So that's a really interesting feature. Um, and the last part that we kind of dove into in this call is credit. People are not able to get loans anymore. the refinance or buying has been a record, >> right? That the rejections are over 43%. So, tune in to the call. We talk about debt to income ratios, rental stuff, all kinds of stuff. But, make sure you tune in and uh see what Melody has to say. Welcome back to another Real Estate Note Show. I'm your host Dave Puts as always alongside me, Mr. Nathan Turner. >> Hey, hey, >> hey. What's up, my man? Um, things have been kind of been different.

We know we've been saying that a lot lately. Um, but I'm seeing a lot more non-performers come through. I'm seeing some funds closing stuff and for no creators, >> I'm seeing that ability to create more notes has been shrinking as well. They're not able to create as much as we seen before in the past. >> So, it's what have you been seeing as well in your on your email thread? Yeah, it's it's all kinds of different things happening all at the same time and different almost conflicting information sometimes because you're right, there's there's restrictions coming in on people creating notes, but at the same time then I'm also getting reports that it's never been higher.

Then we're seeing more and more seller finance notes than ever before. So, I'm like, well, can those things coexist? I suppose they can. I don't know. >> So, and it's interesting. And then same thing I'm I'm hearing from some people that uh delinquencies are rising and then we talked to so our serer and and he's saying that actually it's better than it has been in the past. And so very interesting and I'm not exactly sure what to make of it. Um uncertainty in our world tends to be good news actually. So so it's actually okay that it's not exactly clear. Um, one of the beautiful things about notes is we can pivot and we can change directions very easily and very quickly.

So, we can adapt and I I think that's a lot of fun and I I think that's what we're going to see going forward. I'm I'm curious to have our guest on today and get her take as well. >> Yeah, absolutely. Um, I I do it is very weird right now with being able to do it, but we're seeing influx of more. Um, but I'm really interested to see we're seeing delinquencies in car loans, which is one of the first triggers that goes, and then we're seeing things such as like people at their max capacity to afford anything. >> And what does that mean? >> Right. And I agree. I the car loan one seems to be kind of a canary in the coal mine.

Uh, that's that's kind of a precursor to what else is going to be happening. So, that's definitely one that even though we're not involved in car loans at all, um it's an indicator of what may be coming. And so, that's interesting to kind of watch and see. Student loan debt, same thing. Uh watching those kind of things, credit card debt, watching those things come up and >> how are those going to then translate to the mortgage world. >> Absolutely. I I'm seeing the credit cards being one of the big triggers of hey listen if I can't if my credit card is the highest it's ever been and household income is starting to shrink again.

What does that mean for the industry in whole? >> Um while we're talking to those people who who were creating 15 20 notes a month we're now down to 10 to 12 and then on top of it we're hearing from our REO friends and selling an asset. Two years ago was 10 days. Now we're 90 days, 120, sometimes even more. >> Yeah, it's taking much longer to get a deal done, which is again foreign to us. Like usually you're selling a note and it's done in like a week, 10 days, we're done. But yeah, it's taking longer. >> Yeah. So, um, with that said, it we're we're going to also be honest in this call. I know the people who we've had our guest on before.

We want to make sure that we're going to be honest with what we've said in the past and say, listen, we were wrong. We're predicting things at the same time as what could have been shifted. Maybe it wasn't wrong 100%. It just was the timing was wrong or something affected. >> Yeah. >> We want to be honest with people that listen, we're guessing since 2020. We said, "This doesn't make sense, but why is it still working?" Right. >> Yeah. Yeah. And we're we're always looking to learn and and that's why we do this show really is so we can learn stuff from people >> that know more than we do. And it it's been so cool to have that happen over the last few years.

And >> that's what we do. So, I'm fine being wrong. [laughter] >> Yeah. Absolutely. >> We can make our predictions and who knows. >> Yeah. Yep. Let's bring her in. Melody Wright, thank you so much again. uh third time on the show, but you're awesome information. You're a different world than we're in. Uh welcome back. Thank you so much for joining us. >> Thank you for having me. It's my pleasure. >> So, let's start out. What have you been doing since we've last had you on the show? What changes have you made? What have you been exploring? Just a 10,000 foot level. Yeah, I mean it's just it's just it's in these transitions it can be very difficult to tell what's going on and and what I would say is you know I I find what Sahil says is fascinating but not um without precedent.

Um and so let me start by saying Dave you know how I was wrong coming into the beginning of this year. We had such strong sales in December of last year. I thought we could push that through and actually have more transactions which would mean more price discovery because that is what had happened in the fall when rates started to come down before the Fed cut. Sorry, just have to mention that again. And then after the Fed cut, of course, rates went up again. And so I thought we would be able to keep that momentum because you could also see there was a lot of exuberance around the new administration.

Everything was just like turnurning along. And then April, you know, the tariff terror happens and everything just came to a screeching halt. Um the bond market went absolutely bananas. Rates, you know, were just I mean that the bond market was selling off like crazy. And so the housing market died again. I mean it it died. I mean when we say 2024 was the worst sales since 1995 and we've increased population by over 20%. [laughter] I I just don't think people they they need to understand now part of that I think is because it's in your space and it's and I have a little anecdote don't let me forget I want to tell you about that seller financing to your point about notes increasing or decreasing which one.

So anyway so we get here and we just kind of skid to a stop. uh you know the summer was very lackluster and I just I keep pushing just come on we just need more sales because what's happening to that median price is um so firstly I don't I don't like to make predictions I like to just talk about the path but I've been forced to do it because certain people wouldn't debate me if I didn't have a forecast but and I can only look at the math you know um and what it tells me and and so yes I was wrong in my prediction of home price decreased But what's happened again this year is that because we had so few transactions, uh, who's transacting is that top 1 to 10%, it's now more than 1%, not even 10%.

And then anybody they can get in the door, the last one in the door with FHA, the builders are doing this, giving crazy incentives, they're about to get in trouble. There's been a big study out about those seller concessions that they're not properly accounting for because they're doing an accounting trick. Um, and on the new home side, by the way, those prices have come down. >> And then and that's before you take into consideration all the incentives, which is about 50,000 per home if you ask LAR. And so the the new home market has been chugging at a much faster clip than the existing home market.

And when we last got results from them, that median price went below the 400 mark. And that was before their worst time of the season. Okay, that's going to come up here soon. >> Now, we haven't had builder results for two months in a row because the governor government shut down. And so that's that is uh by census. So, we have no idea what's going on in the market, but there are clues in the existing home market as to what's going and this is a long-winded answer, but um what I'm seeing under the covers in the existing home market is uh you're starting to see transactions increase in that below 250 price tier.

We need more of that. Uh we need more of your regular Joe and Jane transacting. Um so today we just got application numbers for mortgages, which um is up, but that's a weekly series. Don't, you know, you got to look at it more long term. But we definitely did see sales increase last month. Uh we're now about 2,000 sales ahead of where we were last year. So if we keep pushing, we can just because I think what you're seeing under the covers of those 85 markets that I track, a lot of those markets are already in correction cate uh territory. Like twice as many, so about 31 of the 85 markets I track are in have year-over-year price declines.

That's twice what it was this time last year. You just saw Zillow come out and say 53% of homes have lost value through their Zestimate at about 9.6%. I thought that was funny because I had claimed I had said I think it's going to be 9%. Um but before the breaks kind of went on and so anyway we are seeing it correct in many places across the country. And so if we can keep pushing sales then that's actually where we're going to start to see home price declines in my opinion. Um, so I and I can I can stop there, Dave, to see if there's anything you want to pull on because that was a lot of words and then I can go on to to the rest about Seahill's point on the delinquency side.

>> Yeah, [snorts] I think house sales is something none of us predicted, right? Nathan, you and I both talked about this that it was just chugging along, chugging along and people were still in demand for this >> and it just flattened where it was almost a month turnaround where it went from this is going well and who you spoke to. It's like oh it's going great. It's going great and someone goes no it's flat and you're like who's right, who's wrong and then within two weeks you ask anyone oh yeah it flattened. >> It just was an overnight switch. you like like well the 30 days here 15 days there now it's a 90 day we not sell anything we're we're now bailing out and then what hits what hits then those people who are listen hard money lending we'd love to see some feedback from you of >> what are you seeing in trying to sell these properties we're hearing from the seller the people who are lending that hard money lending saying hey anyone who is not able to make the balloon payment in 12 months we're going to forgive the 18% % or whatever the default rate is, just get our money.

>> And it's been so amazing to see that. Nathan, any thoughts about that? >> Yeah, it's the same kind of thing. And to your point, like you say, David, like uh we've got some properties for sale in California and and all year long up until like two months ago, three months ago, it was just chugging along. Everything's going, everything's great. And then all of a sudden, like like a light switch, uh we've got one property in in Oakland and it's just like nothing. And it just like nobody's coming to the open houses. Nobody's even looking at this. And it's insane. It, you know, a month before that we would have had competition on it.

We would have had multiple bids and then all of a sudden literally nobody's even coming to the open house. So fascinating and just like overnight all of a sudden. And so that's been really interesting to to see and watch and and we're not exactly sure why. I would love to know the reason why so that we can >> figure out how to >> is it the fact that these people can't get loans around it. >> Is it debt has gone up? Is there cost of living? It can't go up that cost of living can't go up within a month. But >> we're curious. Do you know what could be triggering some of this change that so quickly? >> So let me tell you the one time it can go up in a month, right? It's when you get your escrow notice [laughter] >> and >> escrow will do it.

>> And May is when Californians uh when you get that escrow analysis run every year. Okay? So think of that for perspective. And I saw it. >> I all of a sudden in my serer advances because you know as a serer you have to advance out money for those property taxes and insurance. >> And what had happened I think it was April I right around that April May timeline. No, it was right in May that everybody got their uh insurance increase notice as well. Um, and it didn't hit some of those escrow analysis uh like in time for the escro analysis. So, my service advance went up exponentially of what I had to pay for insurance because everybody got their notice in California that they their insurance was going up by 43% even if they weren't in a fire zone.

And so, that that definitely put a that's a time when in a month. Now, of course, all over the country, it's not like that. You know, sometimes you do it on the yearly basis. It just depends on the state. So, that's when it could happen. But, I mean, I couldn't believe what I was seeing in escrow notices. And again, this is like the third year in a row though. And so, when I was at a very large, the number three largest serer in the country, they had done a review of their entire servicing book going back to 2020 and they said that insurance has increased across the book by 50%. That is insane.

Oh wow. >> And so people they just can't afford these homes. And so the other thing that's that's an interesting phenomenon, right, is that and moving over to the delinquency. Well, so let me stop with the so the Fed just came out with its summary of consumer expectations and they track expectations as well as actual results and the mortgage refinance rejection rate is the highest they've ever had in that series. Now in February it was at 41.7%. That was something I said at your conference. It just [clears throat] it so it moderated after then and then it just clocked another high. So I think it's around 43% right now.

So people can't refi. They can't refi. And you know and and then it's in terms of purchase they're not qualifying either. Um and a lot of times that's happening at the closing table when they look at that final insurance bill and they're like uh negative. Like I I can't do that you know. So, so moving over to the default side, you know what we saw in the last cycle as well is that FHA peaks early. So, your specialty servicing these are the people that have already been in trouble [laughter] >> or maybe they've lost their job 18 months ago or two years ago or or whatever. And so, specialty service is actually going to peak before everybody else.

FHA is going to peak and then is when you start seeing degradation in your prime book. And that's what I'm starting to see right now in servicing is Prime is starting its climb up. And then we see these layoff notices. You know, Challenger came out and said October was the worst. Uh October they'd seen I can't remember. It always it's like always going back to the crisis right with these days the headlines worse since 2008 or whatever. >> Yeah. Um but so layoffs just keep coming fast and furious and you know so there is people despite what the administration says despite what everyone wants to claim about the economy being great it's terrible I mean and and people you know then you put a government shutdown on it and so you know the stock market's going out of control there's a lot of reasons for that if people have never like read Mike Green or someone like that who talks about the passive flows from the 401ks and and that's how this kind of like blind machine keeps driving the stock market up.

But there's a little dent in that narrative now too. Um you're seeing all across mainstream media, they're talking about the AI bubble, which is something uh my colleagues have been talking about for years. Uh but it's now picking up steam in mainstream media. And so I think what happened in April, guys, is that uh when pe when the boomers saw that stock market crash, um yeah, they saw it go back up, but they were also like uh I don't feel so good. [laughter] And so, and I think that's the consumer as well. Like even with the stock market going up, you know, they know what they can and can't buy.

They they know how constrained they are financially and they are completely constrained. Now, we'll probably see a little bump in retail sales for November and things like that because if you weren't getting a paycheck for how long you want and and we saw it here, like the day that everybody got paid because we have a [clears throat] big VA hospital, like I went to the mall, I was like, whoa, I haven't seen this in like three years, you know. Um but but it's again, it's going to be temporary because people just, you know, uh they're losing their jobs and they just don't have the money to sustain.

So, and I think what we're about to see is the prime book deteriorate. Now, FHA because of those get guard rails that went on on October 1st. Um, we will start to see material foreclosures come out of that population. And so, you know, you'll definitely see the tick up in Q1. This takes a long time as you guys know uh because of the CFPB. But then by Q2, that's when all the time should run out and uh we will start to see those and we're already at, you know, doubledigit increases year-over-year for forclosure starts and sales, which you guys know it only takes one in your neighborhood to make a real difference in things.

>> And so this can happen very quickly. But I think the biggest thing is that access to credit has really u been restricted not necessarily by the lenders saying but by just the fact that people can no longer qualify. >> And is there any kind of thought of when that may change? I mean it's just it's tough. You know I think it's credit card debt groceries cost more. Everything costs more. that I don't know if there's a light hit in the tunnel for this, but I also don't see a influx of non-performing where things are going to get defaulted quickly. And the weird thing is there's tons of equity out there.

I would think that these people be able to sell their property, but then they can't qualify for a new home and and then they're going from a 3% rate or a 2% rate all of a sudden up to a six and a half, seven. >> That make that's a lot of money every month. >> A lot of money. It's a lot of money. But I I honestly and I've talked about this before. I think our picture of equity is problematic. I don't think that because of you know people not reporting things to credit. Private credit got in mortgage in big way and they're not reporting everything to credit and as we know those partial those payment deferrals are not recorded on public record and so core logic totality is not factoring those into their equity analysis.

So I and and what I'm actually saying >> real quick for those who may not miss our last call. What is the payment deferrals and what does that mean? >> So uh as the [clears throat] work out to the forbearances um you could take those 18 months of payments and put them on the back of your loan. Uh it's non-interest bearing and it it's paid off when you sell the home or or ultimately pay off the loan like through a refinance. Um, and the agencies made the decision not to record those. And so nobody knows they don't they exist unless like the way you guys are going to know is when you get that payoff quote, it it should have it on there.

But if these things aren't recorded on public record, uh, Core Logic's not picking them up in their equity analysis, which is what everybody uses. Uh, and then the Fed uses Experian for their household debt and credit uh, paper. And I'm starting to notice that Experian just has a lot less uh like if you look at credit reports um you'll see that there's a lot less items on an Experian credit report like negative items and say maybe Equifax and the other. And so this is the thing you don't have to report to all of them. In fact, [clears throat] you don't have to report. And so I think that's what's happening because the Fed showed 30 plus coming down a little bit last quarter.

NBA didn't show that like uh even in Black Knights number. So it's like that's just weird. Um so but anyway, >> you think you think the debt of the household is is higher than it's being reported >> 100%. So that the value like the old was that the Scheler test rate where it's at household income versus value of the property is not where we were in 070 you know 0708 but we're getting to the point where it's >> unaffordable and it's displaying that. >> Yeah. And you can go so you can fact check me and go look at Fanny May DTI levels. Right now, debt to income levels. We are right at 2008 levels around that 38% in the Fanny in the Prime book.

In the Prime book, >> we should never be at 38% in the Prime Book. Okay. >> It's just that's not sound lending. And so, um, >> yeah. So, it's I I think again there's just a ton of narrative and so it makes it very confusing. And I think Nate, as you say, you know, when we're in these big transition periods, you are going to hear um a lot of conflicting information. >> Yeah. >> Um but where uh you know, where I would tell everybody to keep looking is at inventory. So, what we've got going on right now in the existing home market is a lot of rage dellisting. There were several stories this week about that where boomers didn't get the price they want, so they just delisted.

But that inventory is still there and come spring it will not be alone and I think they think that it will be alone because so many people talk about the inventory shortage and so I think a lot of people are going to be in for quite a surprise in the spring um because they've just been convinced until we got an article in Bloomberg and an article in Wall Street Journal this week that you know there was an inventory shortage they would be able to get that price for their home but both of those articles in the same wake said, uh, you need to consider lowering your price if you want to sell your home.

And so that message went out >> loud and clear in int anticipation of uh the spring selling season. And before that, two weeks ago, we got the message about the builders that they're in trouble. You know, a couple of articles there. So, so I think the narrative has changed and we're in that transition moment and you're going to actually start to see FHA is going to start to flow through the system, but they may not get higher in delinquency. I hope that kind of makes sense. Like whatever has been building up in the dam's going to flow through to del to foreclosure and now we've entered the part of the cycle where Fanny and Freddy start to degrade, where your prime book starts to degrade.

Um because your peak distress has really already hit that subprime borrower. And if you go back and look in history, you'll see that uh FHA definitely peaked almost a year before Fanny and Freddy. I think it was really a year and a half. Um so yeah, >> are you seeing any changes with those people who have equity like they did in 0506 taking second leans out and taking a hold of it or are you seeing people being smarter than they were in ' 05 and holding off on that? Are you seeing kind of numbers? >> Yeah, I I I think people are taking it if they can qualify for it. I mean, I don't think anybody's being smarter in this cycle.

I I mean, there I'm sure that there's probably people out there I I don't ever hear I mean, some of the things I've seen uh in servicing already are absolutely bananas. Like, you know, 15 leans on one property, you know, the like and and the serer realizing that their investor is not in first position. And I mean I'm seeing some nutty nutty stuff where people like turned around got a fake 2.2 million loan right on a fake like they sold it to one another each other so that the person could turn around and refy it and then go buy another property. So these are like little rings. Uh there's a case I'm holding with down in Phoenix.

I mean no nobody nobody no hardly anybody got smarter. Ju probably just the people that got really burned in the GMC got smarter. So, I'm curious like um there's been a couple of quote unquote solutions that have been kind of floating out there. >> So, I um I don't think it's worth talking about the 50-year mortgage. I I it's just such a not a great idea that I don't think that's going to take any take off. However, the portable mortgages, uh that is something we do in Canada, and that's actually what we did three and a half years ago. We took our ultra low rate 1.75 and and just transferred it to a different house.

So we we ported it to another property. >> I prefer to being able to do that even that's amazing. >> It's not in the States and it is in Canada. However, the thing that I I would hope that they do in the States if this is something that goes forward is we really did have to re-qualify. So it wasn't just we qualified before and now we just go ahead and just transfer it to another property. We had to we had to re-qualify. We had to send in all of our same documents that we did as if it was a brand new mortgage. Um had to prove the value of the second property, make sure there was enough equity, those kinds of things.

Like it it's it's a lot more complicated than maybe it initially sounds. Like it and don't get me wrong, taking that rate for another 3 years has been fantastic. Um but it's I would hope that if that's something that's considered in the states that they do it responsibly and make people re-qualify. >> Yeah. I mean the thing is any solution is possible right but you would take down our securization machine and it would I mean this is and so that's a big >> that's true >> in the non uh solution space I'll call that our political [laughter] societ they can't even imagine doing something like that that but it would literally take down the securisization machine you are signing that deed is your security instrument right >> and so you would have to change all kinds of um you know rules within securization, you'd have to buy it out of the pool more than likely.

Um, and then you would not have any certainty over reselling it into the pool at a certain rate. And so then that would add on the premium and so your interest rates would probably have to be higher. So I'm all for it, Nate, but it would bring down the entire securization machine in the US. >> Huge thing >> and and I'm all for that. I'm all for that. Um but uh that's unlikely. >> When you did do that and the house value is higher, do they just increase the loan balance and redo the loan for 30 years? >> So for us, what the way it worked out was the home value was very very similar. So sold at 860, bought at 810.

So we're right on par and you know almost straight across. So it was a very relatively simple process except for having to re-qualify and that was uh that was the big challenge. So, but it's a it's a viable option except for the securities thing where then that's that creates all kinds of havoc. >> So, Melody, with with this being said, are you seeing markets that are still doing well? Uh I mean what does well mean like uh >> that days of market aren't 90 plus days that there's is there any market like because Texas and Florida right now from we're hearing from the stats is not doing well at all.

>> Yeah. I mean there's certain markets where there's definitely transactions happening like Rochester, [clears throat] New York, they're still transacting uh there. Like Indianapolis, they're still somewhat transacting. Um but uh you know I I would say though there's stuff just sitting and sitting and sitting. Uh so there's a little bit of transaction. Uh but now I don't there's there are not many markets that are just on fire. Now for whatever reason something is was definitely going on in San Francisco. And what I've heard is that uh people are trying to offload their homes to like Nvidia millionaires and things like that.

And so I think you have markets where there's more motivated selling um that makes it look like it might be uh relatively stronger, but then that it reaches a point and it just kind of like peters out. But there you see that um and I've I've come up with a new category called depressed selling where sales [clears throat] are down year-over-year but so are prices month over month and year over year. And I call motivated when sales are up and prices are down because you know people are really motivated. Um but distressed, this is what we're seeing more and more of now is where you get that foreclosure notice.

Um are are you you know run out of your very last forbearance and uh you have to turn and cut. And so what I do is I look and this is the point I wanted to make. Uh, I take a sample of all the payoffs that I see in client books and I go look, okay, what happened? Did you sell? Did you refi? Whatever. Um, so of the of this sample, I will tell you that more than 50% sold, but not through MLS um this past month. >> And uh yeah, and I can tell that how. Well, one, you go look at the listing services. it's not there and they don't have the information. [clears throat] Two, it's they reference in the notes a certain attorney, a certain title company >> and I'm like this is very interesting and that's a hu more than 50%.

I mean that's that's wild. So I think that there isn't your alternative market is out there and people don't >> I I think that that's also part of why people don't really understand what's happening is because it all happens without being tracked you know so we don't actually know what's happening >> and we we've been getting feedback you know those people who watch our show and listen to our show a lot of times are are small people in different markets right >> right >> but what we're we're finding out is that those small people as a collective sum have a great understanding of the local area more than the banks and a lot of times more than the services because they have boots in the ground.

They see the fact the house is sitting forever. They see the abandoned properties. They know their culture a lot better. So guys, if you're listening or watching us, >> you know, you're one piece of a puzzle that's really important. So give as much information about your local market as you possibly can with the chat or on the social media platforms and just let people know that what you're seeing locally because that's extremely important. If you're seeing great times and saying I don't know what Melody's talking about then they're great. >> There are pockets that are doing wonderful. >> Right.

Right. Um, >> and when we get that local information, I mean, we saw this, this was portrayed really well in Big Short where they fly out to California to Florida and start looking around and we're like, "Oh my goodness, this is not exactly what's being reported." >> And and that we see that same thing when we get together in our groups and talk and discuss what's going on in your local market. It's not always what's being reported in mainstream, >> which is why I drove over 10,000 miles. [laughter] >> Yes. Exactly. >> Yes. and and you know and saw saw what they they wrote about in the Wall Street Journal and Bloomberg two weeks ago about the builders.

I saw that in 2023. >> Yeah. >> Was talking to reporters then, you know. So, I totally agree with you. And let me tell you from Boots on the Ground, I was at a conference in Dallas. Um this is the I think I told you about it, Nate. It's the um uh it's called FiveStar. It's a a conference for people in default. and uh heard from the the person the rep from Equator that short sales were just exploding everywhere. So she was telling everybody this was like an REO group, right? Real estate own. She was telling everybody, "You guys need to know how to do short sales." And and now that's just so I had heard that from just a couple people I knew from the industry, like smaller players and I but to hear her the person and if you don't know what Equator is, like it's the largest REO system that people use out there.

Hearing her say that because you know what have we been told for five years? There's nobody underwater, right? Like but but like like overnight two weeks ago 900,000 people are underwater. I was like wait a minute >> whoa >> you guys said nobody was like [laughter] and so >> that bro's equity >> right where's all and then and then my friend John Kamisky that you know um you know he's looking at all these FHA builder loans uh that are underwater. I went to the neighborhood out in Texas where that was happening. Empty new builds of course. So those people are are probably going to be looking at really reduced uh values here in the in the near future.

I mean, it's just sad. And so I I really feel our media has done a uh real disservice to the American people in my opinion because I, you know, I think a lot of people made decisions that they probably wouldn't have if the media wasn't running around saying some of these things like there's an inventory shortage, you know. So anyway, >> yeah. Is there any markets out there that you're seeing that's significantly doing, you know, well, where it's like, man, you said Rochester is one of them. And and what do you think's prepping those those industries up? Is it, you know, Walmart pulling in next door? Is it a large company coming in um >> manufacturing jobs? Something.

>> Yeah. What's scary about that Rochester area? And so when I say better like so don't don't don't go by there because what's happening is they have a buy the block program uh where because they have so much vacancy um the investors are going in and buying up blocks and things like that. Um >> but but >> uh the the promise of Rochester was going to be that Micron plant that was in adjacent like it wasn't even in the same town. Like I I still don't understand it. Um because I did a deep dive on Rochester and how all industry had left and and you know and but they want to be kind of this tech hub.

I've heard that about five cities across the country. But um you know what's happening now is all the investors that went in and bought properties based on that Micron story are now selling which is why it looks like it's transacting fact. So you always have to be careful. And Micron just came out and said they were delaying that plant by two to three years which always happens. And so people get a city gets sold on a narrative, the investors follow and then you get into trouble. So I just quickly looked at So like I said, um San Francisco looks hot right now from a year-over-year perspective.

Um but they're down, their prices are down. Um, Honolulu, we we know that it looks hot, but we can tell you the inventory has absolutely exploded and and so and prices are down and so and I mean Hawaii is in a lot of trouble right now. So, I think most of the story is that if >> if there's transactions, it's because they're just they're motivated or distressed right now. I I've seen a lot where um municipalities in particular are changing the rules on Airbnbs >> and and so then all these Airbnb owners are like, "Oh, shoot. I'm out of I'm out." And then so they start selling. >> They start rental.

They start doing long-term rentals, but the long-term rentals do not equal what the Airbnb >> Oh, not even close. I mean, it it probably may equal, but not what they were told it would equal >> by AirDNA, who said they could get, you know, 10,000 a month. >> [clears throat] >> Texas. >> So, one thing came up recently and unfortunately Nathan and I weren't able to attend was an expo um that was ran and talked about AI. >> What have you been hearing about AI? And we've heard some whispers we'll bring up in a second, but what are you hearing from the bigger players that are using are they using AI? Are they doing tools with >> using it? >> And how are they using it? >> Yeah.

So, I have a bias of, you know, I trained uh large language models. Uh I tried uh you know what what I always came up against in fintech is nobody really wanted to do the work uh to make it happen. Um they would start with a technology project and end with a room full of Indians. Um you know like doing the work and and often lying to the client you know these were things I found out not because I was told. Um so listen I you know there is limited use case for AI. Um it there is uh but it is not what everybody says that it is and anybody that's trying to use it like MIT I think came out with that story and said you know it's like 95% of people that are using it can't don't aren't seeing any productivity gains and so as someone who played around with coding in my life before you also know my biggest excitement on AI was around coding because I thought oh you could code something really quickly the problem is as a coder it'll you will look at the code and it won't be working but then you have to figure out what did it do you know and that takes twice as long as if you had written the code.

So how are people using it? I don't know that they really are. Um I think that >> we had a whole show on it because I do a lot of coding. I was never a coder for back in the day in high school and I use it just to code and do certain Python scripts and things like that on a daily basis and for me to dive into code I don't know what I'm looking at for the most part but I'll say here's my error and error and we run I run about 15 20 Python scripts a day on a repeated basis which is great but what I was curious about was brought up was using blockchain and AI tools like that have you heard anything about that from your level of blockchain being use to record mortgage documents, things like that.

>> Oh, they won't ever do it. I I tried really really hard. And then I finally met the person that put the kibos on it in the industry because he basically he worked for the largest technology provider in the industry and he told them if you use blockchain, you will put yourself out of business. >> That that is >> so they don't is I I wanted to do it for Jinny May repurchases. I wanted to do it for Jinny May settlement. It would make so much sense for recording >> mortgages, for all of that stuff, but and this is part of my thing, Dave. It's like, could it it helps individuals? Sure. But the companies can't or won't adopt it for a variety of reasons.

And that is what I came up against throughout my entire time in mortgage fintech. I was a believer and and I do still believe in certain aspects of the technology, but the industry either can't or won't. and and a lot of >> I think the red tape is what's blocking a lot of it from progressing. It's like whoa whoa whoa we can't do and even government in general they're way behind at times. So I think that those who are using it are going to benefit from it tremendously. >> But those who are holding back from it >> smartly. >> Yes. Those holding back from are going to fail. I mean I think that's going to be the new upper that maybe these big companies are going to be passed by someone smaller because they're doing it.

Um but the problem is you can't do recording documents if if partials are on a blockchain and some aren't. Um right that's >> frustrating. >> And and I think too I so I think it's also though being used as a ruse. Um u meaning that I I don't necess I think these companies are going to fail [laughter] not because they adopt AI like if we're talking about mortgage specifically it's not going to be whether they adopt AI and in fact I think the biggest adopter is probably going to fail. Um, but is it that I think that we're using that as a smokeokc screen for an economy that has been really not great for most Americans for a very long time.

And and and we're also looking at a model that needs to go away. Non-banks should not be lending that just they that there's they don't have deposits. They don't have deposits. And and this is where I think, you know, you guys come in because I'm really at the point now where I just don't think we can Henry Ford credit. I just I don't, you know, like everybody has tried. They've tried and they've tried with these automated underwriting models and what I'm seeing on the other side of that is just it's horrible. And so I mean what you guys are doing is actually assessing [laughter] creditworthiness.

>> Yeah. whereas I think that the lending industry has gotten far away from that. But tell me what you think about that. >> That's a great that's a great point bec. So I went to a mortgage AI conference of month month and a half ago and um as far as the on the origination side what they were saying they're they're using it for and and I agreed to it with it to a point but they're they're using it for helping people fill out the documents. >> So like the the the 103 application. So, >> they send it, they've got this little chatbot person that says, "Now, I need this, now I need that." And then they send in all the documents and everything else.

I think that's a great use for it because once that's all done, now they send it to a human who can fill in the blanks and say, "Okay, this is why this is a good deal or not a good deal for this borrower because and all the extra things that a computer is not going to be able to analyze properly, >> right?" So that I and if they goes that direction I think that can increase efficiency a lot. Um but again it always comes back to that human that has to make that final decision. [clears throat] should in my opinion but anyway >> absolutely because what if like so AI uh so firstly it won't it won't be able to say oh that's a fake uh paycheck stub like uh you know like >> we do smudge tests like you have to do physical things sometime um and then also it's easy to hallucinate oh he works at General Electric and makes $500,000 you know so >> yeah yeah >> and again I think limited use cases where you have a an awesome model, but guys, what it takes to keep those models, those large language models running, they get off the rails at a mo a second's notice because the more input comes in, the more their brains just start to fritz out and more training that is required.

>> It's a lot of effort. It's a lot of effort to keep these things running. Yeah. >> And I tried all that stuff, Nate. I was building a >> underwriting tool. I was building a document gathering. I mean, I've I've got a product graveyard you would not believe because I, you know, I wanted the efficiency. I I thought there were ways that we could do things, but I've now realized like the folks that are going to use it are going to probably use it poorly. Um because you know you need you absolutely need that human underwriter looking at and this is where Aus went completely arai in my opinion because every uh lender was like well I don't have to take any responsibility for this.

I mean AUS says approve approve you know so >> so we're seeing we're talking to some of the servicesers and the biggest default right now by far has been rape >> wrap notes and there's more and more being created um I'm sure >> he was going back like six eight months >> uh and we talked to a couple of different servicesers and they said the same thing that those wrap notes are the ones that are defaulting in large measure >> I just care even believe we're talking about [laughter] them. So, I mean, it's just it makes me want to go back and study the 80s more and what happened because I think there was a lot of that then, you know, um I'm not as familiar with that cycle.

Uh but anyway, >> yeah, I I think we're in the transition time and so everything's going to look very confusing for a little while, but for you know, I think like you guys both said, uh look local. that's going to tell you what you need to know and then together as a sum, you know, is going to give you a much better national picture of what's going on. But boots on the ground these days is just absolutely critical in my opinion because like, you know, let's say you were thinking of buying a house in California or somewhere like if you just started driving around, you would be like, why is all this property vacant? like what's you know and maybe there's not a for sale sign but it's going to give you an indication that there's something not exactly right in that market and the worst thing about a market like California in those big areas is the low owner occupancy right and so we know that boomers own the majority of the homes um and they own a lot of the investment properties and so there's so much rental you know in places like LA places like that but those are owned by people that will be for sellers >> in the near future.

And so, >> are you running rental numbers? Are you seeing rental numbers going up or down or where are they at >> in terms of inventory? >> No. of of of cost like >> Yeah. >> are you seeing them going up still? Because for years we've been seeing them constantly going up where it's unaffordable still. >> Well, so and this is a that's a great question and here's a some good food for thought. So October apartment list came out and said boom largest decline in a month they'd seen blah blah blah. I can't even keep up with these stats anymore. But go, you know, Google it, you'll see. >> Um, but the second thing where rent is going up the most is Chicago.

Why is rent going up the most in Chicago? Because they gave non-forignborn $15,000 for their rent in a subsidy. Okay, they just stopped those programs. And so what you have in a lot of these cities where rent is going up is false demand uh through subsidies to our immigrant population. Um places like you know Portland did programs where you get $30,000 as a down payment only for foreign born. >> Um so this this is a story that people we we just we can't understand how much it's impacted the housing market yet. we will like you know John Burns just came out and showed even though everybody said it wasn't happening uh you know lending to immigrants it was 6% of FHA until it stopped and so it it's this has a big impact like New York okay what's going on there well they were housing illegals in hotel rooms and so hotel rooms are crazy expensive and then you also have the thing where 50,000 or more I've heard up to 100,000 of those rent stabilized apartments are being held off market because they can't since that 2019 law, they can't raise rent enough to cover the repairs they need for zoning and and requirements.

And so each market has a story, you know, um but there's a lot of >> false demand because of these government programs that are running out. And so, you know, I think just and and the inventory like because what the point you said, Dave, is so important. It's like when they can't do the short-term rental, they're going to try to do the long-term rental. And so in all of these areas where you have 20% inventory increase year-over-year, you also have similar numbers on your rental inventory. And so it it's it just it takes a lot of time for these things to play out. And and you know, and when you have things like the government doing a crazy loss mitigation program, >> it really slows it down, you know, and makes it really confusing.

Amazing. >> My brain's hurting from the estachi given. >> I know, >> but I I I can't I can't say anything you said isn't something valuable to be heard. Um, and I think people either ignore it or they don't think it's important or it's not affect me today, so I'm not really or my local market. Right. >> Right. >> And that's the problem. Right. This happened 0506. Um, it didn't happen here. It didn't happen here and all of a sudden it happened everywhere. >> Exactly. >> It's going to be very interesting time and like I say that our challenge then is to look for ways that we can help and and different kind of opportunities that could be presented there.

So interesting. >> We're going to put you in the hot seat again. >> Yeah. Yeah. What do you see? So I mean we've we've talked about all kinds of different things but um if you could give us [laughter] >> I know you don't like doing this, right? Yeah, I know. >> thing you don't like to do, but but Well, what do you what do you see in the next, let's call it 12 months? >> Yeah. So, I think we'll end the year probably flat. Uh Case Schiller is very interesting to watch right now. Non-seasonally, it's coming in negative uh month over month, but uh so home prices I think will end flat. >> Um I hope we kind of get sales just up a little bit year-over-year.

And that's what it's looking like right now. It looks like we are picking up steam now. you know, one month is not a a trend, but we'll see. But next year, you know, I I just don't see how we don't see price corrections. Um because what you're seeing right now, and like I look I physically look, I could use a script, but I physically look at these markets each week and I can tell you that price cuts are accelerating. um they're just not those homes aren't being sold. And until those homes get sold, you know, we're not going to see those price cuts. But I think you're going to see more short sales.

>> I think you're going to see more REO. I think you're going to see more delinquency from here. Um and you're going to see a lot more abandoned property. And so >> put your money in your pocket and keep it there. >> Correct. We've talked the last couple weeks. You know, people who are buying assets and stuff like that. Please, if you're seeing a lot of people bragging about buying, don't get too envious if you don't know what the other side looks like. You don't know if they bought bad or good or or if they're, you know, the future, what's going to happen to that market. So, just be careful. You know, do your own due diligence.

Do your own business. Correct. >> And don't be jealous of anyone. We hear a lot of people, oh, that person bought five assets. >> Doesn't mean you should or shouldn't. just means the fact that they did that. So >> Melody, it is always a pleasure to have you with us and spend the time. Um the other world is such a unique feature. Um and I'm sure our world is probably just as interesting to you. >> Um in what we're seeing on a the small micro market of the big mortgage thing. Um but we'll definitely have you back just to get a snap snippet of what's happening and how we're doing what what's going on the market.

um a global idea of where we're going and that's such an interesting roller coaster we're on um that we are in this >> and the funny thing we all complain about this but I still see us doing this five 10 15 years later >> just because we love the space as much as we do >> right >> yeah awesome >> yeah great to have you thank you >> thank you so much for coming on spend some time with us we will talk soon hang out for hours to everyone else we will see you soon take care everyone.