You've had a dynamic where money has become freer than free.
You talk about a Fed just gone nuts.
All the central banks going nuts.
So it's all acting like safe haven.
I believe that in a world where central bankers are tripping over themselves to devalue their currency,
Bitcoin wins.
In the world of fiat currencies, Bitcoin is the victor.
I mean, that's part of the bull case for Bitcoin.
If you're not paying attention, you probably should be.
Melody Wright, welcome to the show. Thank you for joining me.
Well, thank you so much for having me. It's my pleasure.
As I was saying before we hit record, I was on Michael Ferris' show Coffee and Mike last week.
And after our conversation off the record, he said you have to reach out to Melody.
I was telling him I'm in the market to buy a house where I live in the Northeast in the Philadelphia area.
And you've been on his show.
I've since my conversation with Michael, watched a few of the podcasts you've been on in recent months.
And I think this is a conversation that I'm not only going to get value out of, but we have a lot of millennials, Gen Xers in the audience who are probably in a similar position than I am.
So I'm really happy to jump in and talk about the real estate market with you.
Awesome. Looking forward to it.
Yeah. And like I said, I wanted to open with a chart.
You come with a bunch of quantitative, hard data.
Something I like to follow, not only in real estate, but just generally is Google Trends.
And if we look at Google Trends right now, particularly for the search help with mortgage,
we are at uh we have reached uh march 2009 levels yeah yes indeed uh this is not surprising at all
um and you know what's crazy about this though marty is if you think about it we have seen
unprecedented uh intervention already and low modifications and workouts that you know so many
people took forbearances during COVID. And once those forbearances were over, you know, you could
go up to 18 months of not making payments, you had to have some sort of workout to deal with those
forborne payments. And so what many people did was a payment deferral, if you had a Fannie or Freddie
loan, or a partial claim, if you had an FHA, and they put it at the back of the loan to be paid off
when you sell the home or pay off the mortgage. And then many people did modifications as well,
reducing their payments. So this is quite shocking because we've had intervention that far outweighs what we saw after the last housing crisis.
And yet people need help with their mortgage.
And what is driving this specifically?
You think it's the labor market, people becoming unemployed, not being able to afford it?
is it mainly homeowners who got committed to adjustable rate mortgages and with the mortgage
rate being above 6%, their payments just became too much as a combination of things.
It's a combination of things. And based, but, you know, a lot of it is, yes, the labor market is
weak. You know, we have kind of the highest folks working two jobs and those are part-time jobs
right now that we've ever seen. And so, you know, I think the labor market has been weak for some
time, but people got into mortgages they couldn't afford. What a lot of people don't understand
about this market is that after 2008, the banks really stepped back out of the mortgage market.
This was because of Basel III requirements, the supplementary leverage ratio, things like that.
And the non-banks stepped in, but they did, they're funded basically by the government-sponsored
enterprises and agencies. And so what you have now is a largely government market.
And the FHA program specifically kind of stepped in where private was last time with subprime.
People getting mortgages with credit scores of 580. If you have a big down payment, for instance,
you only have to have three and a half percent down. And so that share of the market right now
is around 13 percent, which is about the share of what subprime was the last time things started
falling apart. And so people just simply can't afford it. And something I said years ago is that
we wouldn't even have to have a deteriorating labor market to see a crisis because property
taxes and insurance have risen so much that people simply what, you know, they were already
taking out too much leverage that they really couldn't afford, you know, based on these loans
they were getting from these government agencies. But then you tack on property taxes and insurance.
And I've seen, you know, your mortgage servicer pays those and they put it into your payment.
And I've seen escrow notices go out saying, we're sorry.
Well, they don't even really say we're sorry.
But, you know, hey, your payment has just increased.
It's just doubled because like if you're in California, for instance, because of that insurance increase after the fires and property taxes.
So I think it's just a real affordability crisis at this point.
Yeah.
Property taxes are interesting.
They've been a topic of conversation the last couple of podcasts, particularly after Ron DeSantis started on his campaign trail of eliminating property taxes in Florida specifically.
And I think I forget who it was, but basically described property taxes as unrealized cap gains taxes that are really pushing people out of the market.
And I imagine they are affecting the boomers the most in retirement age.
They thought they had their nest egg in their retirement accounts.
They're looking at their average mortgage payment and say, OK, we need to hit this level.
We can sustain these payments and buy food and go on trips and whatever.
And then you see inflation across the board and the triple whammy, I guess, with property taxes going up as well.
Yep. When I was in Miami in July of 2023, there was actually seniors stormed a condo administration building because they got notices that their HOA fees were going up.
And this is, you know, I think this is what the whole country has forgotten.
Places like Las Vegas, Florida, here in East Tennessee, Gatlinburg, is that these were middle class people that were coming and moving.
And, you know, they weren't the super rich, right, Californians.
and ultimately they're being priced out so this was a very it was in pembroke pines a very middle
class or even blue collar um condo big condo development um and they just got to notice hey
your property tax your hoa fees are going up like 500 because of insurance and different things like
that and they stormed the police had to be called like a an old man was like pushed to the ground it
was terrible. I mean, so what you've seen since then is inventory just fly onto the market in
Florida. And I think that's a big question is what's going to get first is going to be mortgage
rates or the prices of these homes? Because I think that's what, again, putting my millennial
perspective home buyer hat on, I'm looking at the prices of the houses in my area. I'm like,
yeah, they've dropped a bit. They certainly haven't risen in the last six to eight months,
but they're still relatively elevated, especially when you factor in the mortgage costs. And I've
been saying on this show, it's two parts of the equation of housing affordability,
of the cost of the house and the mortgage. And if rates aren't going to fall, we need to see
the people that currently own the houses just stomach the fact that they're going to sell them
at lower costs than they expected.
Correct.
And even if rates do go lower, Marty,
it's not going to be enough
to really juice the housing market again.
And so I think that, you know,
because of those existing lower interest rates
and for rates to really go lower,
you would have to have the Fed buying
mortgage box securities again
or somebody buying mortgage box securities again.
That could be one of the things on the table
is Fannie Mae and Freddie Mac doing that.
um and so that's the only way those rates go lower but even then if you i can remember 2010
uh that was everybody's great hope as that rates would go low and they could refi and we did have
a mini refi boom back then but it did not stop home prices from uh correcting and i feel that
because of where we are the other thing you asked about affordability but also people can't access
credit right now you know what's happened with those student loans now that they're reporting
and this is important, of course, for your millennial and even Gen X, you know, is now that those are credit reporting, we've seen massive impacts to credit scores, you know, and the Fed had a study in February where 40, almost 42 percent of mortgage refinance applications were rejected.
I mean, that was the highest they'd ever seen in their series.
And so people can't access credit anymore.
Klarna, you know, these places that are now reporting or I think it's actually only a firm that's now reporting to credit.
But now that they're reporting to credit, they can't do buy now, pay later anymore.
And so the doors are just closing all around.
And so even if rates go lower, you're not going to have a lot of people who are going to be able to qualify.
And the fact of the matter is, is we had the lowest first time homebuyers on record last year since they started tracking in the 80s.
And I think a lot of people fundamentally misunderstand this housing market.
It's about investment and speculation and not really homebuyers.
And such you got to think about what's going to happen in a speculative environment.
Yeah, well, that's a great point to bring up, considering the fact that this is a Bitcoin podcast.
I'd love to get your thoughts on this and sort of thrusting this on you because we didn't talk about it in prep.
But that's one of my strong beliefs is that the fact that real estate has become the store value asset and investment vehicle that individuals and institutions use to attempt to outpace inflation when one can make a strong argument that real estate is not really fine tuned for a store value asset.
It's a consumable good.
It's a depreciating asset.
One of my big
thesis and many Bitcoiners
thesis is that you're going to see a value
leak in terms of
from real estate to Bitcoin as
people begin to wake up that you don't
need to use your house as
a savings vehicle. You can use this
digital scarce asset
in Bitcoin which has far
superior properties in the fact that it's
scarce, visible. You can send it
The internet has no maintenance costs, no property taxes.
And that seems to me over the course of many decades moving forward that it's going to become obvious to people.
But I think right now the big problem is, again, going back to the boomers, is that this is what they were taught their whole lives and their whole careers growing up.
It's like you get a job, you funnel it into real estate and financial assets, and you're going to be good.
but we've gotten to this cross point societally where it just doesn't work because
you're driving this affordability crisis, which is getting out of hand. You mentioned
the new home buyers number being the lowest on record last year, but then
you also have like the median age of a homeowner or a new homeowner, even with it being
the lowest point in history, the median age was 56.
You know, it's insanity. And so, you know, what's happening right now, people don't understand.
I mean, there's so much data you need to look at when you're looking at the housing market.
And most people look at like two factors, you know, inventory and price, and that's it.
But what people don't understand is that, you know, the municipalities got drunk on the American Rescue Act money.
Like they got all this. They were infused with money.
And so they did all kinds of programs like, you know, down payment assistance programs, housing affordability programs.
But they just they got used to it and they didn't think, oh, how can we how is this how we're going to reproduce this?
You know, as I was taught when I was little, money doesn't grow on trees. Right.
But they just kept spinning and spinning. And so unfortunately, people are going to think, well, home prices are going to come down.
maybe my property taxes are. In reality, those municipalities are going to be after you. And so
I think this whole Florida DeSantis thing is kind of funny. Let's see where it ends up.
Because you look at somewhere like Boston, who, because they have lost tax revenue from commercial
real estate, they are putting that bill out to homeowners. And it's, I mean, that's crazy. And so
unfortunately, I think that this is going to be uglier than most people think. And those property
taxes are really going to weigh in that leakage that you're talking about.
Because if you think about a house that costs that much to maintain, then that value, that's
not the value just continues to erode.
Yeah.
And how much of a, I mean, you mentioned institutional buyers, how much of an effect do they have
on the market?
Because I've seen headlines and data coming out that like the Blackstones, Black Rocks,
Berkshire Hathaway's of the world have been buying up single family real estate or multifamily real estate to use as an investment vehicle, buy it, rent it out.
It seems like they're underwater on a lot of the properties across the country.
They are. And it's so it's people.
This is a huge debate of how how how much how big are they really?
What's the percentage? But it just it really you don't even need an aggregate percentage.
It's just very it matters locally, like in San Antonio, Atlanta, these places where they did go big.
You're definitely seeing prices fall much faster because they're underwater.
They can't they don't have a homestead exemption.
They so they're getting hit with property taxes, insurance at the same time, their cost of funds for the borrowings that they have to keep that Ponzi scheme going is higher and higher.
And so they're underwater and they're selling what they did in 23 and 24.
a lot of what they did was trade amongst themselves so that they could sell it off to like,
like Americans Home for Rent would buy some of Lennar's new builds neighborhood. But they,
and at that price, they could turn around and refinance and get more borrowings. And so they
were kind of all in the family trading so that they could continue to access credit. But we're
hitting the point now where they're going to have to distress sell. And you're seeing it has massive
impact on neighborhoods and you don't even know usually if you have one of these next to you.
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this because I was just listening to a podcast this morning you did with Adam Taggart recently
where you mentioned it. But I think to set up this part of the conversation, there's I'm sure
you're aware of the all in podcast uh jason calacanis david freeberg david sacks chamath
pal papati i've been like beating the proverbial desk on x every time they talk about the real
estate market because they're like we just need more supply we need deregulation we need to take
the federal lands and just build housing on uh on federal lands we need more supply and it's just
abundantly clear to me that's not the solution to this problem if anything you're going to
exacerbate it and you're going to end up building low quality housing that really doesn't have any
value at the end of the day, particularly in the long run. And it is mind boggling to me that
some in the financial cognoscenti really can't see that the problem to me seems like a financial
engineering problem where again, going back to we're using housing as a savings vehicle and
more supplies not going to solve the problem. Right. No. And in fact, I would, I'll take them
on a tour if they would like to go see what I have seen on the road. And everybody, here's the
thing about permits. They think that they can track this by the permits. Well, they can't. Number one,
we've seen reduced participation in those surveys. And that's how you find out how many permits. It's
a survey. And then secondly, in unincorporated areas and places around me, Tennessee, Texas,
you don't have to file permits. And so I could, if I took people to see what I have seen, Marty,
there there's no way and that low quality you talk about it's already out there and it was as
if they were building army barracks marty i mean all over florida texas i mean a tennessee it is
it's actually insane how much inventory is out there raleigh outside of raleigh north carolina
i mean all over the country and so i'd love to take them on a tour to show them all of the supply
as well as all the vacancy all over this country.
There's vacancy because we've had a lot of foreign buyers use the market for money laundering
or just, you know, parking their cash there.
But a lot of it is money laundering.
And so there's just a misunderstanding of what's going on out there because most people
can't wrap their heads around the fact that this became a casino.
And how it happened is essentially they saw Wall Street buy up those homes at the end of the last crisis.
I was there at the auctions and the banks were just begging them, please, because it's not profitable to foreclose, no matter what anybody says, just the way the machine works.
And so the banks were begging.
They came in and bought them.
And then everybody got hooked on that whole idea of fixing and flipping, renting out a house.
I mean, it was a national obsession.
But for whatever reason, people just can't admit that that's what's happening.
I have a you you probably if you listen to that podcast, you know that I asked Adam this question.
It's like most people think the average household size in the United States is around three or four.
And in reality, it's at like two point five.
And that's because of all of the second homes and all of the investment that's happened.
And, you know, I have a friend who says, do we really want to get down to one house per person?
I mean, is that what we want American life to be?
But there's just a huge misunderstanding of what's happened in real estate.
And they just they and I don't know, sometimes it feels willful, like like, you know, that actually they do understand what's happening.
So who knows?
Yeah. Well, let's expand on your offer to take anyone on a tour.
Because from what I understand, this is part of what's opened your eyes.
You literally traveled around the country to see this.
And I mean, you alluded to the experience, but let's expand on that experience.
What drove you to get in the car, hop on planes and travel the country?
Like one morning Bloomberg edition just in January of 23 just infuriated me because they
were talking about the housing market was coming back.
And I was like, are you guys on crack?
Like, how could you pop?
And at the time I was looking all around, looking at all the analysts that, you know,
I had previously followed people like Ivy Zellman, who kind of called, you know, was poison Ivy last time we called it.
She was talking about demographics at the time.
She was one of the only ones.
But people just were putting the whole all of the pieces together.
They weren't putting that, you know, we're as Harvard says, 15.6 million boomers are going to age out between now and 2035.
And they own the majority of homes.
People weren't putting together that we had all this built for rent, single family residence like you were just talking, being built for rent.
all this new home development, all this multifamily. And so, and then, you know,
and then I also come from mortgage credit. And so I also understood there just wasn't enough
people out there that could afford. So I read this article and just decided at that moment,
I had no pre plans of this, that I was going to get in my car and I was going to, I was going to
go to Austin. But, you know, I stopped in Nashville was my very first city on the way.
and I got to Austin and I mean, I will never forget standing in my first mega site in Austin
and just going, I mean, I was physically nauseous, Marty. I was just like, what is happening? This
can't be happening again. Because as someone who lived through the last crisis, I swore up in debt.
We swore as an industry, this would never happen again. We would never, the builders swore this
would never happen again. You know, they got, Lenar got a tax bill out last time and swore it
would never happen again. And they were swearing on earnings calls. They weren't doing it. And I
was standing in that mega. And what is a mega site? People might not know. It's where all the
builders build in the same site. And so you have like Toll Brothers, Ryan Holmes, regional builders,
and they just have this massive development and they were just building up into the hills and
with all the homes were empty. And I was just like, what is going on? And then I saw that over
and over all over the country. Florida is it's depressing, Marty. I mean, again, a lot of them
look like army barracks and I just it was insane. And that's because I I track data religiously,
you know, 85 markets. I look at them every week. But you you have to at some point you have to
get out and go look for yourself because and that's what I tell people, just take a left turn
on your commute instead of a right and you will see what I'm talking about.
That's funny.
You bring up Austin because I just moved back to the Philadelphia area where I was born and raised from Austin.
We did a four-year stint in Austin, moved there in 2021 when the real estate market was screaming.
And we luckily, and I like to think, very smartly decided to rent.
And we rented the whole four years.
Very smart.
And our rent never went up.
And I think that was because right after 21, things started cooling off.
And it's not only on the residential side.
If you were in South Austin, if you look north to downtown, there was, I think.
All the multifamily.
There was 10 trains in the sky the whole four years that we lived there.
And you talk about, that's one thing I worry about.
My commercial real estate friends in Austin specifically is because there's a ton of inventory coming on market, both in residential and commercial real estate.
I used to rank a city on how many cranes I'd have.
I call it like five crane sand, even though Austin, I would argue there were probably like 30 cranes when I was there.
You know, I often wonder where the crane's going to go to die.
You know, these are usually individual operators, a lot of them.
And so Nashville was the same.
You know, Nashville, I think, was the first to really get started.
They started really around 2018.
But yeah, it was that multifamily.
And this is the thing, Marty, it's all luxury.
It's like everybody forgot who lives in this country.
Like, and I think that this, because we saw wages going up, you know, for that brief moment
and, you know, and it was like, oh, we're all getting rich.
We're all going to be rich.
We're all going to get fairly paid and life is going to be golden.
And, you know, because you had a handful, this is what's so funny.
You had a handful of Californians and people like this move into certain areas and people
are like, they're all moving to my city and then built for that Californian.
Well, the fact is there's a limited number of those Californians that are going to come.
And this luxury, nobody can afford.
And Austin has all, I mean, the vacancy and multifamily there is just staggering because they all built these luxury high rises in downtown that are empty.
Yeah.
The luxury.
And then they had the California white boxes that they were building.
We were in the Zilker Park neighborhood and there was the California box style house that sat for sale.
The black houses.
Did you see those?
And I was like, what, what is this? This is what, what was that?
It's not really aesthetically pleasing either.
And then I saw what's that movie series despicable me. Is he the one?
Yeah. He has the black house. I was like, is this what this is?
Like I just, it made no sense, but anyway. Okay.
Building for grew. You don't want to do that.
As a father of young children, very familiar with the despicable me series.
That's right.
No, that's, I mean, I'm not sure if you're a fan of urbanism or like Chuck Maroon's strong towns concept, but that's something that I pay very much attention to.
And it's the reason why we moved to the section of the Philadelphia area that we did is because you have houses that are literally 100 years old that were built well.
I love that.
I think that's one thing that really disheartens me in today's day and age is literally taught to get on the hamster wheel of competing and outpacing, competing with and outpacing inflation.
And that just leads to completely misaligned incentives in terms of the quality of builds and what you're getting to market at the end of the day.
Right.
I think that's going to be a massive problem.
We have to deal with decades from now.
It's like during these periods of the mega sites that you're mentioning, what are we going to do when nobody buys these houses?
We bulldozed it last time.
We bulldozed it in the 30s.
Like, we'll bulldoze it.
I mean, actually, there's a book called Swamp Peddlers, also another book called Bubble in the Sun about Florida.
They take you through this history.
This is something that happens over and over.
and there's a picture of a guy on a bulldozer in a subdivision from back, you know, in the 30s.
And so and now what was crazy for me, because I did manage to fault at the end of the last crisis
and spent most of my time in Florida and I would go and look and they were building on the same
subdivision that had been bulldozed before. I mean, that that was just like that is when I knew
in the middle of Florida, flooding everywhere, low cell service, 21 of these mega sites. I was
just like, whoa, that's Lakewood Ranch. That will go down in history and not a good way.
And so that's what we're going to have to do. And I often say I'm bullish bulldozers,
although John Deere's having a little bit of trouble right now.
So, bye.
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That's a good question. As you described earlier, it seems like the dynamics of the debt markets, the credit markets and real estate are different than they were in 2008 with the banks sort of fading real estate due to reserve requirements and Basel III. What's the other one? Oxley. What's the first word there?
Oh, socks.
Yeah.
Sarbanes socks.
Oh, I'll never forget.
Socks, yes.
Most of my mid-30s.
Yeah.
So how do you think this deleveraging plays out and how does it differentiate from 2008 if it is upon us?
Oh, you know, I think that private equity, private credit, like this is one big mess and it's going to be ugly.
Um, I, I have a theory and this is, I often talk, think way into the future, Marty, and
you know, I'll lose a lot of people that way.
Um, but, uh, I have a theory we might see a, uh, bailout in the form of Fannie and Freddie,
a government agency buying back the homes from private equity because I, and you know,
under the ruse, the ruse, it will be a ruse under the ruse of affordable housing.
because these guys are so over their skis
and the banks are exposed here as well
because they've lent to these private credit.
And it's just like what we're just now seeing
with Tricolor, this subprime auto dealer
that just blew up claims of fraud.
And we're seeing Fifth Third had to make a huge write down,
almost 10% of their existing reserves.
um so you know this is for one one one one loan guys one loan so if if you're not paying attention
you need to pay attention to this tricolor start because it's going to be ironic um i used to so
my company was originally owned by my former company by gm back during the crisis okay so
we were very closely aligned with our auto partners we were the mortgage arm and you know
back then it was all you bad, bad mortgage people. How could you ever, you know, get like,
get us in this position. And then of course we, we got TARP money and it became Ally Bank.
Who gets, guess what they've done in auto. They went whole hog into subprime. And so it's so,
it's just, it's for someone who is, you know, in a corporate culture where we were the redheaded
stepchild like this is actually kind of funny but um they're they're impacted and so this i think
auto is going to be the first place we see the fires um and then it's going to have a contagion
effect um but the abs is uh in bad shape again it's the same thing it's like people have been
sharing the meme of georgia from the big short you know she's got uh the dark glasses and at s&p
I think it's S&P.
They don't.
I mean, again, they're asleep at the wheel or or or, you know, they actually know and they just don't care.
Well, that's it's interesting you bring that up, as I mentioned before we hit record, just had our third child.
So we I mean, we're very, very conservative with household finances as Bitcoiners.
We save in Bitcoin.
We try to spend less than we weigh less than we make.
but we had to upsize and get a second car due to the fact that we need a third row now,
which is a good thing.
But the financing of the car was very interesting.
I have a very good credit score and I got ping-ponged around by different financers
and had to pay.
I'm paying a crazy rate on it that I'm hoping to refi at some point next year.
That's wild.
Really?
Yeah.
Oh, so that, wow.
So that tells you what's happening.
Yeah, like me knowing sort of following what's happening.
I'm like, oh, wow, they're really desperate for yield here.
Yeah, yeah.
And I mean, but that's that's how these games go, like auto origination, mortgage origination.
Like they always forget there's going to be a cycle where they've brought everybody in they can possibly bring in.
And then but but it is a Ponzi.
You need the way the securitization markets work.
It's a drug.
You need that gain on sale. You need that to originate that loan so you can sell it into the capital markets and get that hit.
And it becomes very addictive. And when you get in these down cycles, they simply cannot cover their cost of funds like they can't, you know.
And so you're there that that is very telling, actually, Marty. Thank you for sharing that with me.
I mean, I could feel it. I could see it. But that's that's wow.
So, yeah, I think let's watch auto. I think that is, you know, it behaved rather well during the last crisis because people did.
They chose their house over there. I'm sorry. They chose their car over their houses because they needed to get to work.
But this time around, I think because of all this crazy lending, we could really see fires in auto and it could cause quite a disruption in the credit markets.
Yeah.
I mean, since you mentioned the Fannie Freddie bailout, potential bailout theory to just buy up the houses from these credit funds and PE firms using the guise of housing affordability.
I mean, it seems like if there are sort of if there's an order of operations to this on the front order of operations beginning to signal to the market as an administration that this is what you want to do.
And it seems like Scott Bissett, Bill Pulte and Donald Trump have explicitly been more explicit in recent months about housing affordability, housing emergency.
Yes. Housing, a housing crisis, housing emergency.
And there's much talk about the Trump administration spinning out Fannie Mae and Freddie Mac as a private company to sort of allow them to get out of the Obama era bailout and feeding their profits into the federal government.
I have a theory on that as well.
Let's hear it.
I think the banks want this.
I think the banks want them out of mortgage.
I they they really you know the banks really mortgage is a great product when it's working
well and you can make a lot of there's not much you can make this much money on and because of
those requirements they had to scale back and and I can tell you that nobody back then nobody wanted
to be a government lender because of the just the red tape all of it it's crazy and then they they
always, Marty, find a way to make you pay. It's never as good as like, oh, your FHA loan is fully
backed. Oh, no, it's not. I've never seen one claim, like a full claim payout. And I managed
a claims department because they will nickel and dime you. They'll also charge you fees for things
that you can't control. They'll also make you repurchase. Anyway, working with them is a
nightmare. So I have a theory that the banks want them out. And by privatizing, I think that Fannie
and Freddie would suicide themselves. And so I think that this could be actually one of those
things where on the surface, it looks like one thing, but it's really about another. And I'll
tell you why I believe this. So recently, our Congress somehow passed the trigger ban. I mean,
they can't do anything else. Trigger lead ban. What is this? This is where when you go to get
credit for a mortgage, the credit agencies will sell that you're actually, you just got a hard
pull for credit to all of these non-bank originators. And they'll buy, so those non-banks
will buy up those leads and then they'll call you and you will get like, if you do this, you will
get hammered. Okay. And so essentially this is, this is very beneficial to the non-banks out of
nowhere. And I talked to a lot of people in the industry. I was like, did you see this coming?
And typically when you get some type of legislation and mortgage, the Mortgage Bankers Association,
They're at the front lines.
Everybody was taken by surprise that now you cannot.
They've done a trigger lead ban.
And this benefits the banks.
And it benefits companies that do own both their origination and servicing.
But in reality, I think it benefits the banks the most.
And it's a way to start pushing out the non-banks again.
So I think there's more afoot here than all the noise around this.
And it's funny, you know, you heard that the banks came down to talk to Trump about this privatization plan. And that's partly, I think, as well, why they got the SLR, why they've been lobbying hard to get those requirements reduced.
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That's opportunitycost.app. That's very, very interesting times because I have a lot of
conversations on this show with analysts with very different theses about where we're going.
And I think the predominant thesis that's been expressed on the show over the last month is that we're going to get lower rates.
The Trump administration is going to do anything they can to make sure that the market keeps screaming and it's all systems go moving forward, which I could definitely see happening.
But then you look at all this anecdotal data, like the chart I showed to open the episode.
You look at delinquency rates, the amount of credit card debt that exists, where stocks are training their PE levels at dot com.
Historic highs. And it's just like a squint at situations like, OK, how can they really keep continue doing this without first saving the middle class or making making life?
better for the middle class, more affordable for the middle class. Right. And I think the train has
left the station. And what I've been trying to tell people is like, you know, you've got to
really somehow figure out how to reduce the noise and look at the real signals. And it's increasingly
hard to tell what is a real signal, especially when they're screaming about the national
emergency on housing. But, you know, the Senate did a very interesting op-ed that not many people
talked about. It was really weird in the Wall Street Journal. And everything that I've seen
action wise, action, not words out of this administration, as they they may perform
some sort of bail out or whatever, but they're they're leaving it alone. And, you know, they put
the guardrails on this FHA program, which could single handedly take down this market, actually.
And so maybe they don't understand what they did. But I if if so, my former CEO or actually he wasn't a CEO at the time, my former he was a boss of mine at my former company is the CFO at Freddie Mac.
And he was the only one left standing, you know, because you remember Pulte went in there and just like cut everybody out.
And I have to believe that he understands.
And immediately following that, Fannie and Freddie took nine.
Well, so Fannie took a nine hundred million, almost a billion dollars in provision for loan loss.
And so I think there is awareness and I think there will be some performance.
But right now it feels as if they're going to let this thing loose.
They're going to let it go. So we'll see.
You have to keep, you know, again, it's kind of like we also heard from them in April, you know, Main Street.
over Wall Street. And then we got a few stock market losses. And you could tell, you know,
it was like, oh, the big freak out. And so you never know. Once we get into the situation,
they might put the brakes on. But what will probably happen is the state AGs will get involved,
especially if we get into another foreclosure crisis to slow it down.
What do you think is the best path forward? Do you think we just need to
take the hard medicine of stomaching this deleveraging and let it fall back to
prices that are probably more representative of what these properties are actually worth.
Is it as existential as we were made to believe it was in 2008,
where the housing market is a cornerstone of the American economy,
and you simply can't let it fall, so you have to come in and bail out at all costs.
Somebody who's been through a couple of these cycles now, at least,
what what do you think is the best course of action despite what may or may not happen
if we don't give our younger generation something to hope for soon marty i don't think anybody's
going to want to live in this country i mean it's i think we're i think it is somewhat so i think
it's existential in the other way like right it's like we had to save uh the housing market last time
you know, the boomers. I mean, I don't like getting into the generational wars or whatever,
but, you know, I think this time around, if we don't give our younger generation something to
hope for, we're going to see more of what we have been seeing. And it's just the nihilism,
you know, the depression, the deaths of despair. Like, I think we're reaching a point where we have
to have young people who can dream again, dream about the things that really are important to us
as Americans. And so I think, yes, I think they need to let it. I think housing has to become
boring again. And, you know, this happened before the Great Depression as well. Everybody was a
landlord. Everybody thought that was the way to get rich. And then you suddenly realize, oh my gosh,
you know, I'm getting phone calls at midnight on Friday. I don't have a weekend anymore. My property
tax and insurance are going through the roof.
I can't find tenants who can pay.
Like if I'm in California, I can't evict them, you know, or New York or whatever.
And so I think that the landlord class, and you kind of mentioned this earlier in the
show you know there now a house coin and I often get people well I got a huge crypto community now that kind of every time I post something negative about housing they come in you know saying many of the things that you said
And so I think this is taking hold.
And I think the reason the sentiment changed is with these natural disasters that we had last year with Helene, with Milton, with the fires, you know, that it changed.
That was in huge areas where people had gone in Bigley for Airbnbs, short term rentals.
And all of a sudden overnight, you have this massive nightmare and losses.
And, you know, the Palisades, I mean, that that destruction was insane.
And so I think this is the sentiment has been changing for some time, but being a landlord is not going to be cool.
It's not cool. And so I think that housing could become boring again if they stop intervening and they can continue to try, Marty.
I mean, they're going to try something. Right. But I think that we've we've reached the point that whatever they try to do to help the boomers is going to crush the younger generations.
And I think as you can, I think that some of our recent events that have occurred, we can see how much anger is really out there.
And we're going to have to contend with that. And when people talk about UBI or things like that, I just look at them and say, who's going to be giving out the houses?
Because that person is probably I mean, they're going to need significant security detail.
And in fact, it won't be enough, you know, so there's just I think that everybody's saying lower rates.
Well, OK, that's up to the bond market.
I mean, what has been is not necessarily going to be so, you know, for the past 40 years.
And I think, OK, well, you've got a globally synchronized economy that so many are facing some sort of trouble.
You're going to have people are going to have to get like, you know, tribal.
They're going to have to defend their currencies.
They're going to have to do things.
And it might mean selling off the 10 year and we won't get the lower rates.
I mean, but since been saying that since what December and we'd have not gotten there.
And so we can't get below four. Like you and I were just talking. I was like, oh, where's the tenure? Are we below four yet? Are we below four yet?
We haven't gotten there. We might get there. But will we stay there? I'm not sure.
no and that's i think that's the collective market has amnesia in terms of this idea that
if you lower the fed funds rate the 10 and 30 year will follow exactly exactly a year ago
exactly a year ago like what's i are we all this silly i mean i i don't understand so it's like
this time i mean marty for three years because i well really honest to god it's been uh five years
um you know it's just my entire industry it's like oh light rates are gonna go so low so low
you know um and and then when we got the hikes um you know people just couldn't believe and they
just that's all they've been selling for the last three years you know so it's it's crazy yeah
Yeah. No, it's your point about the existential crisis being in the other direction this time around. That's my biggest worry, too, is if you think about who are the largest donors, who are the most politically active, who is the most representative in the political class, it's the boomers.
And so if we do get to the precipice of if and when we do get to the precipice of a real estate and broader economic crisis, I do fear just not even fear.
It's just like what is the most likely outcome if you're looking at incentives?
It's the people funding the campaigns who are the most politically active and from an age perspective, most representative in Congress and the Senate.
it's probably most likely that they're going to get another bailout.
I think they're going to try, but I don't know if you follow Russell Napier at all.
I do. I do.
And I think that, you know, what I have learned from Russell and just talking to other people,
it's like thinking about what they have to do versus what they, you know, want to do.
And at some point, Marty, like, you know, they've gotten rid of a lot of the SNAP benefits
through the BBB, Medicare, they've done what they can to like the lower middle class.
They're going to have to go where the money is.
And the money is not, you know, in the middle class anymore.
And it's not in the lower class.
And they're squeezing that as much as possible.
And so I think they're going to you're right.
They're going to try everything they possibly can.
But I just don't think it's going to work this time.
Because and, you know, they're going to ultimately we're going to have to go where the money is.
yeah it's a crazy time to be alive it really is because i'm just thinking through it like
because i don't like if even if we do have an asset price deflation and correction
like the amount of money that's going to be printed in reaction is going to be inflationary and
um just to think that people living off of retirement can continue to assist on that
sustainably is very hard to believe. And I think we put ourselves in a rock and a hard place again.
Bitcoin podcast, I think this is all derived from the money itself and the corruption of how money
works and the cost of money by manipulating interest rates. And I think part of the solution
is not going to be mechanical in terms of the different policy decisions and where you decide
to inject liquidity, I think it's going to be philosophical and more human where I think
there's going to be, there's going to have to be a moment where individual individuals
realize like, Hey, my parents are retired.
They're not gonna be able to live off their retirement.
We may need to get back to multi-generational housing instead of the son living in their
parents' basements, the parent hopefully living in the child's home.
I moved my mom in with me a year and a half ago.
Um, and you know, before that I had just considered buying her house.
It just, it just didn't make sense.
You know, it's like, okay.
And you know, Gen X, I'm a Gen Xer.
Gen Xers were so independent.
We're so into it, you know?
And so the whole, the idea of it was just insane.
But in reality, I just looked at the money and I was like, this is not, and also knowing,
you know, I was studying macro at the time and thinking, no, we need to bat down the
hatches.
Um, and because I think the worst thing you can be in right now is in debt.
I mean, I think that those that are in debt are just going to get crushed by those higher interest rates on credit cards.
You know, it's just I always say say no to debt slavery because in these hard times, those are the people that just get absolutely crushed.
So but yeah, it's already happening.
That's we saw household formation slow last year.
People are consolidating.
Some of the most active construction projects are adding on like your mother-in-law apartment or an ADU on your property.
But like you say, it's going to it's going to shift.
It's going to be the kids that have to take the parents in because actually the boomers are the largest increase to the homeless population right now.
Now, of course, there's the largest group of people, but still not every boomer is rich.
Many of them got wiped out during the GFC, you know, and don't have savings.
In fact, my family got wiped out during our last bout of inflation.
We lost my home to foreclosure when I was nine and a part of my family never recovered.
And I think this is what happens in these huge cycles is you kind of take out massive swaths of the population that just you you take away their future, their financial freedom and their future to be able to be in a position to have enough money to live.
Yeah.
I want to get your thoughts on potential solution.
Selfishly, because outside of this show, I'm a managing partner at a fund that invests in Bitcoin infrastructure.
It's called 1031.
And we've invested and actually entered in a joint venture with a company called Battery Finance.
They spun out a new market capital, which is a traditional structured credit fund with their founder.
And CEO Andrew Hones and their CIO really caught the Bitcoin bug in 2020.
And they're looking out at this problem that we're describing today, particularly with a focus on commercial real estate right now, but ambitions to get into residential real estate and saying we've got a mismatch in terms of the quality of the assets that are sitting within these structured credit products and the reality of the economy.
What they're doing is combining Bitcoin and these assets to try to make it easier to underwrite from a credit perspective because you have sort of uncorrelated, highly liquid, fungible collateral sitting alongside the real estate.
And so they underwrote their first project last year here in Philadelphia, actually,
this commercial real estate, multi-purpose building down in Center City, Philadelphia.
And they basically refied, I believe it was a $12.5 million loan.
Nine was used to pay off the existing mortgage.
two was set aside to do repairs and maintenance and upgrades to the property.
And then one to one and a half, I believe, was used to buy Bitcoin to sit in the loan structure
with the idea that this is a 10-year loan.
We'll offer you a lower rate and maybe a longer amortization schedule.
But we're going to both participate in the upside of the Bitcoin.
The bet they're taking is, hey, we're going to de-risk our exposure.
um to this real estate by adding bitcoin to the collateral package and you know we uh we're
backing battery and very confident and passionate about it because i think when you're looking out
at the world you're thinking of ways to fix this problem i think you have to get creative
yeah and bold i think this is a bold creative solution and one of the big memes the last five
years was the soft landing um that the fed and the treasury have been trying to manufacture and
I don't think they can manufacture it.
I think you need to begin to wean people off of real estate as a savings vehicle by introducing what should actually be the savings vehicle to these credit structures.
Right. Right.
Yeah. I mean, solutions, I think we have to we I would love if they just let the market, they'd leave it alone.
And we did actually get the GSEs out of, you know, or at least a reduced presence.
But I think that the solutions lie within us, Marty, and that we have to start caring locally again. And I think this is I love that you actually are investing where you live, you know, and I think this is important because we're we don't like you say, all the Congress folks are bought and paid for.
Right. And they're there. And they're also of an age that don't they don't have a lot in common with us.
And so but we can't do anything about that, really.
I mean, we can vote, of course, but they're all bought and paid for.
And so what I say is we have to vote with our dollars and we can't, you know, spend stupid money on stupid things.
And we have to start caring locally like you have to start caring.
Like if people had cared in Austin, that city council sold them down the river.
I mean, like just sold them out. And so that's where I think the solutions start is let's do city planning again.
Let's sit down and talk about these empty buildings as a community. What are we going to do about it?
Perhaps there are people that do like you that want to come in and invest and help us revitalize our neighborhood,
take back our cities from these speculators, because that's the everything.
none of these speculators live in these cities, Marty. I mean, they're, you know, they're,
they're either overseas or they're in California or New York. And so they're, they're not living
there. They have no allegiance. And so in reality, what I'd love to see is government gets out of
housing altogether. And that, I think the market will take hold because supply people are going to
be so surprised by the amount of supply we're going to see in the next five years. And so
the supply is going to drown out any,
any other narrative or anything like that.
And so I just wish we could actually sit down and talk about it so that we
could come up with solutions, but I think it has to start loco.
Yeah, I completely agree with that. And again, I mentioned it earlier,
but have you read strong towns by Charles Maroon, Chuck Maroon?
I haven't, I don't think I've read the book. Don't they have a newsletter?
They have a newsletter. Okay. Yeah. I get that. Yeah.
I believe they just did something with Pensacola or some town down in Florida.
But anybody who's listened to this podcast for long enough is like, Marty, why are you mentioning strong towns again?
Because I'm passionate about it and because I think Chuck is really tuned into what makes a strong town and is really focusing locally.
I'll read that.
And most importantly, the metric that he hones in on for a local economy is revenue per square foot for the small businesses.
So like utilizing the space, that wasted space that you're describing.
And I think it's actually something we do well here in Philadelphia.
At least we did to a certain point.
I just moved back, so I haven't been paying as much attention.
But my cousin worked for the Horticultural Society for a long time.
And it was probably about 10 years ago.
But in the summer, they would go to vacant lots and activate them, like have food trucks and stand up beer gardens.
and really good people invigorating and most importantly monetizing those spaces was what we
need much more of small businesses and that's the great shame of particularly the political reaction
and the policy reaction to COVID specifically to decimated small businesses in the middle class.
Yeah it's so depressing and Marty when you drive as much as I do across the country it is just
it's heart wrenching. It is just, you know, it,
we are not living in the America that we remember. And, um,
it, our cities have just, I mean,
I've seen people OD in front of me, like in San Antonio. I mean, I, I, you know,
I recently went out to California to skid row. I mean, I was that,
I've thought I was in South Africa. I thought I was in Cape town. I mean,
it was, it was insane. And this is all over the country, every downtown,
Even my little city, Johnson City, Tennessee, this little city in the mountains, kind of like Asheville, is full of homeless people.
You know, they come here for the Veterans Hospital, but it's one of the best in the country.
It's just we are not living in the country we remember.
And so many of us really don't get outside of our little circle and don't understand that.
And that's why I just think.
we have to one of my I'm so passionate about people just talking we have to be able to talk
to each other and and even if we don't agree on anything we have to be able to talk about what's
best for our communities and our families and I think most of us share a lot of the same ideals
but a lot of what's programmed out there the bots want us to be yelling at each other and and so I
just feel like we have to get back to that small town type understanding our culture where we can
we can recognize and appreciate difference, but it's not everything we talk about. Like we just
talk, it's just tolerance. Like we all love each other because we're working for the same thing.
We want to provide our families a future. We want to provide, you know, um, our kids hope.
And so, and you know, a lot of that in America is that dream of home ownership. And so I just feel,
So we as a nation, we have just completely let sort of social media take us apart.
And we just have to start fighting back, in my opinion, and getting involved locally and doing things probably nobody wants to do.
Talk to other people. You have to talk to other people.
Agreed. It's incredibly ironic because the state of discourse that you're describing is just feeding the negative feedback loop.
And the state of discourse is driven by the problems that the underlying systemic problems that exist.
So people, no matter if they're red or blue or MAGA or democratic socialist, whatever it is,
they're suffering from the same economic, systemic economic problems that have very unique and specific problems at their core.
And the discourse is just driving a wedge between everybody and exacerbating those problems.
because you find that you actually never talk about solutions with other people.
Ever.
It's been what's most frustrating to me is that I just kept thinking like a dodo bird.
Like we would get to that point.
Like people would be more aware by now because they would just drive and look and see what's happening.
And that we could start talking about solutions.
And I mean, we just, we're not there yet.
I mean, it does feel like, though, things have started to accelerate recently.
I often talk about because, you know, people say, oh, you've been saying this for two years.
I've been saying what the path is, like where we're headed.
And basically, I say we've either sped up or we've slowed down.
And we are we this summer, we started to speed up again.
And and actually, we're at September 16th today.
That FHA program gets its guardrails at the end of this month.
starting in October and it will take time. This is not something that's overnight, but
this is going to have a massive impact on the housing market. And most people are not
paying attention I was on site at a very large mortgage servicer two weeks ago and they said Melody you the only client that started talking about this We just had one other person bring it up But I was like I mean I was screaming when I found out
about it because this is going to double their work almost overnight. And so most people though
in the industry that are left in the industry don't remember what happened last time.
They have no, they don't understand a fault. And so the whole industry is asleep as well.
So, I mean, it's, you know, this is going, like you say, these are very interesting times.
And I just, the people that say like they've got the script and they know exactly what's going to happen.
I call total BS.
I mean, I think we are in the wild west right now.
And people just want to believe they understand what's about to happen.
But I think, I think we are, we are living in the moment, Marty, right now.
And it's going to be kind of crazy.
Yeah. And could could we just reiterate what those FHA guardrails are?
Yeah. So this is this program was crazy. And there was a recent Wall Street Journal article. So it kind of got exposed in April because of a Wall Street Journal article. But it was nuts. So basically what the Biden administration did is, you know, back during the after the crisis, we had to re underwrite you if you were going to get a loan modification. We actually cared. Could you actually pay this modification if we give it to you?
We modify your note. And some people could not. And so we we did not give them a modification.
But what happened this time around because of covid and the stress of covid, people didn't have to send in financials anymore.
In fact, they didn't even have to call their mortgage servicer to become to be put on a forbearance.
You just automatically kept putting on it, getting put on it.
And so then that wasn't enough, Marty. We saw in June of 23 people going into delinquency in the FHA.
And we knew the administration knew that there was going to be an election and that was just not what they couldn't have it.
And so they came up with this this like partial claim supplement modification where you essentially could go and say, you know what, I can't pay.
I didn't pay for three months. And they say, no problem. Let me take those three months, put it at the back of your loan.
and then you didn't pay for three more months and then you just went back again and then you went
back again i have a colleague who has done he dives into the mortgage box security data
and it has these partial claims and the partial claims if you've had one you are five to seven
more times more likely to go into default again so these things are not they're just that you keep
going back to the till and in fact you've got whole rings of originators that know this and
they tell investors, Hey, you don't even have to pay your mortgage for 12 months.
Like don't even, so go get this mortgage, go into early payment default.
You'll be able to get this partial claim.
And so, I mean, this is, this is insanity.
And so what they did, um, many of us in the industry lobbied against this, uh, is they
put guardrails on that You can only get one of these every 24 months People could go back You could take out up to 30 of your unpaid principal ballots 30 That is insanity Well now you can only do this
every two months. You also have to pay trial payments to be eligible. Now, what is that?
This is every workout. You have to pay at least three payments. So they know it's skin in the game.
This is something we understood back then. You have to have some skin. So you have to make those
three successful payments now starting in October. That was not even a requirement before.
And then the other big thing that people don't get is if you have delinquent student loans,
you will not be eligible for a workout. Now, Marty, I can tell you that every mortgage borrower
out there is used to calling in and saying, no problem. You're going to, you'll get the hearing
that you'll be getting some help. There's some kind of workout. We're just now starting to see
people run out of all those options. Well, this accelerates that for FHA. And pretty soon, a lot
of people that thought, okay, I'll be fine, because they're going to work something out with
me are going to be told you have no option, because if you have delinquency loans, you will
not be eligible. So this will all take time. And delinquency, you have to wait 120 days to foreclose,
you have to wait for them to miss all three trial payments, things like this. But we will start to
see this have a massive impact. We are going to see increasing foreclosures from here regardless,
but we will see material foreclosures in Q2 of 2026. Yeah. And this is only residential, right?
We're not even talking about commercial. I mean, we're not even, that's what's so crazy, right?
And we see that every day. Oh, this went into special servicing. This went into foreclosure.
And you're getting no bid auctions, like nobody's buying. So they've done a lot of great
extending and pretending. I don't know if you saw the show with Bill Moreland and Jack Farley,
but if you have not, highly recommend it. He goes through the bank balance sheets. It's bank reg
data is his newsletter. And oh my, did he teach young Jack some facts, but it's just on these
modifications because they changed the way you have to report the modifications now. So all the books
look better than they actually are. So it's all these little tricks to make it look a little bit
rosier for a little bit longer should i get him i should probably get him on the show oh yes
he is a gem i mean he's a he's a credit nerd like me like i mean and he he went through it
and that was my job was watching credit you know and i watched people don't understand 2006
a lot of our prime borrowers looked just fine by 2009 they did not because these factors of
now you're not getting home price appreciation now you can't access for a refi the credit
market anymore. It just changes everything, but it takes some time to really show up.
Yeah. All right. Stay frosty out there, everybody. Stay aware. Make sure you follow Melody because
I think again I joking right now but I think there a facade on the economy right now with government data
I mean, obviously, the last jobs report, it looks like they're trying to clean it up at the BLS,
but what the financial pundits on CNBC and others are telling you,
particularly as it pertains to the strength of the middle class and the economy overall,
I think if you just look at data, particularly in housing,
It's becoming very obvious.
Like, again, going back to the first chart, the only chart I showed in the beginning of the episode, like qualitatively, if people are searching help with mortgage, people are struggling out there.
And absolutely.
I think we're getting a triple whammy.
And obviously, this AI build out is pushing up electricity prices.
In a lot of places, I don't think that's another thing that is being swept under the rug by mainstream pundits and the administration is the average cost per kilowatt hour price per kilowatt hour of electricity in major U.S. cities is approaching 20 cents, which is insane.
And energy is the raw input of everything we do in the economy.
Absolutely. It's happened to us here in Tennessee. I mean, just shot up overnight.
I mean, and again, yeah, we didn't even really talk about that.
The taxes, insurance and your electricity bills.
I mean, and this is another headache for landlords, obviously.
So, yeah, it's nuts.
Well, we should do this again at some point.
Absolutely.
Thank you so much.
In a few months when or maybe in the beginning of next year, see where things are.
Yeah.
Where can anybody who's so inclined find out more about your work and what you're doing?
If I haven't depressed them to death, right?
M3 underscore Melody on X Twitter, M3 Melody Substack and M3 Melody YouTube.
Awesome.
Well, Melody, thank you for joining us today and thank you for the incredible work.
And like I said, hopefully we do this again at some point next year.
Hopefully.
Absolutely.
And thank you for having me.
It's been my pleasure.
All right.
Peace and love, freaks.
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tiki