Coming Flood Of Foreclosures To Sink Home Prices | Melody Wright

**Melody Wright** (0:00)
And by the time we get to Q4, you are going to have a really sizable foreclosure population. At the same time, that distress, there's no buyer to come and buy these homes where those marginal sellers need to get out of the market as quickly as possible. And those two things coming together, including increases in gas prices and also electricity, and that's going to happen all over the country.
These forces are just going to push that distress seller to the breaking point, and that dam is going to break in Q4, in my opinion.

**Adam Taggart** (0:46)
Welcome to Thoughtful Money. I'm Thoughtful Money Founder and your host, Adam Taggart. Welcome you here for a discussion with the delightful Melody Wright, housing analyst extraordinaire. Melody, how are you doing?

**Melody Wright** (0:56)
I'm doing well, Adam, how are you doing?

**Adam Taggart** (0:58)
I'm doing very well. Great to see you. Melody, last time you were on the program was for Thoughtful Money's spring online conference, which was in March, which was two months ago, which not all that much time, but kind of in housing years, kind of feels like dog years, I'm sure.
I had a lot of questions for you, and in particular, I want to zero in on the potential risk of coming foreclosures in this discussion. But let me just step back and at a higher level, ask you, what's changed since March? In March, you weren't super optimistic about the housing market's prospects. You've been coming on this program for many years, and you've been very consistent, especially over the past two years, that you really think that we are slouching into a national housing correction, which you have said could be worse in terms of a full decline of prices than the GFC. Have things gotten better, stayed the same, or gotten even worse since we last talked in March?

**Melody Wright** (2:02)
I think when things start to really turn, Adam, and I think what you and I have witnessed over the last really three years, coming up on three years, is just the layers of this correction, right? How the dominoes start to slowly fall. Then when you get to a real big, huge transition moment, the messages are very mixed. I was not at all optimistic about sales because you just weren't seeing it.
I think we only had February results when I talked to you, which was prior to the war.
So I was really curious to see what would happen. What happened is sales really slowed in March, which this is not when sales should be slowing. This is when the gas, somebody should be putting their foot on the gas. And then what was interesting to me is in the price information that I was looking at, including the National Association of Realtors and then Redfin. You saw what I call the seasonal firming.
It doesn't matter if you were in 2007, 2008, 2009 Typically, prices are going to firm during the selling season because the people who are transacting are the ones that can't. Now, when we get to the second part of our conversation later, I don't know how much later it will depend, but when foreclosures, and this is something you've been talking about forever, we just have not seen foreclosures so that other marginal sale. You know, what we've been seeing is the only people that can transact are those that really can afford it or getting help from their parents, are those propped up by our government subprime. But what you weren't seeing was a ton of distress sales because of basically all these loss mitigation programs. But we're getting to the point now, which I thought we'd see it a little bit earlier.
And we did see some of it last year, but we're getting to the tilting point where the distress sales are going to start to outnumber those other sales. And that's when you're going to see some real activity in pricing. But then what was fascinating though, is we just got the Freddie Mac Home Price Index. And this, if anything, is likely to lead Kay Schiller. And if I'm talking a ton of jargon, just stop me, Adam. But Kay Schiller is so delayed that you just really can't use it to figure out what's happening. But if any series is going to lead Kay Schiller, it's the Freddie Mac Home Price Index because they use basically the appraisals from the closed sales that Fannie and Freddie purchase. And we just saw something we haven't seen since 2011, between February and March. And so they've been tracking this since 1975, Adam. So in the past 51 years, there's only been seven times or seven years where you had this low, if you're looking at the non-seasonally adjusted, this low of an increase from February to March. Because again, this is the season, this is one that should be taking off. And then non-seasonally adjusted, it has not been negative since 2011, okay? So we just entered Adam, and it's kind of terrifying to say it because, you know, we just had a lot of starts here. But this is a very unique indicator, and it feels as if in the season, to see that kind of weakness, that what I saw in January, where over half the cities I track had year over year price declines, compared to like 17 or something like that the year before. Like, this is real. Like this, we are starting to actually see on an aggregate basis, not just in pockets across the country, but on an aggregate basis price weakness.