Keith Jurow: The Housing Recovery Illusion

Published on
April 24th, 2019
24 minutes

Keith Jurow: The Housing Recovery Illusion

The Expert View ·
Featuring Keith Jurow

Published on: April 24th, 2019 • Duration: 24 minutes

Is the U.S. housing market on the precipice of another price collapse? Real estate analyst Keith Jurow tells the story of the last ten years of the housing market — utilizing a very different framework than most commentators rely on. Jurow breaks down the data, unpacks the risks that may threaten home prices, and provides his view of where the housing industry is headed. Filmed on March 26, 2019 in New York.



  • KB
    Kirk B.
    11 May 2019 @ 00:54
    I strongly commend Keith Jurow for taking the time to thoughtfully respond to comments about his interview. His responses resulted in a very informative dialogue, giving much more credence to his perspective on the housing market.
    • KJ
      Keith J. | Contributor
      13 May 2019 @ 13:53
      Kirk, Thanks for the very kind words. I see it as my mission to inform viewers and readers about risks in the housing/mortgage markets about which they are unaware. The goal is to prepare them for the ugly times that almost certainly lie ahead.
  • WG
    Wade G.
    8 May 2019 @ 20:39
    Wow, sort of stunning to me, and I'm fairly cynical. I'm wondering about a couple angles. First, is it feasible to size the overall problem: what's the rough count and presumed value of all such chronically delinquent houses amount to, and what is that in comparison to the total market. Get to some guestimates about time frames for resolving the legacy problem, under various scenarios leaking them into the market. The second, probably more important issue relates to how exactly did this come about and persist for so long. Is it possible that holding back inventory to support price stability and price increases more than offsets total losses on the inventory held back. Or is the tactic here only possible due to suspension of mark-to-market accounting, or some other explicit fraud? Mr. Jurow seems to believe a developing down turn in housing may cause this game to unwind, but without understanding the accounting (games?), its not clear to me what catalyst is needed to end the practice. As noted by someone below, how much if any of this, relates to deed/ownership problems from MERS/fraud during the bubble years. Are losses booked somewhere or not, and if not, what would force them to be booked?
    • KJ
      Keith J. | Contributor
      10 May 2019 @ 13:11
      Wade, You raise some great questions for which there are really no clear answers. Wall Street and the pundits generally believe that the kick-the-can-down-the-road game has really worked. But it's only delayed the inevitable liquidation of millions of deadbeat borrowers who haven't paid in years. If the current weakening in housing markets continues, watch out. My next MarketWatch column will deal with this.
  • JA
    Jesse A.
    2 May 2019 @ 03:46
    Thanks that was interesting and I think I agree with the general assessment. I was a little confused on some of the charts though, like at 8:05 left it showed percentage gains by metro, but I re watched it and I was not sure what the start of the period was? It said through 2018, but from when? Also, at 13:07 left it says percentage delinquent more than 5 years, which seems like sort of a strange rolling average sum that I had trouble interpreting the meaning of. I mean, most of them stated in 2008, but then in 2018 if you're looking at > 5 years, then you're kinda talking about ones that started in 2013? I just was not totally sure from the way it was presented that it showed the problem in 2018 was getting worse?
    • KJ
      Keith J. | Contributor
      2 May 2019 @ 16:31
      Jesse, I thought I mentioned the average period of ownership on the final table was 8 years. If not, let me explain. For those metros I list, the average period which the seller owned the house was around 8 years. So divide the gross profit figure by 8 to get the rough annual gain. It's pretty paltry except for the west coast markets. As for your second question, the table shows how many of these delinquent deadbeats had not paid the mortgage for five years or more. You can see how that percentage soars after 2012. Lots of delinquent owners decided to stop paying because they didn't think they would be thrown out for years. They were right. So the last column -- early 2018 -- shows the percentage who had not paid since 2013 or even earlier. I know these figures are incredible, but they are rock solid. Nobody else reports them except me.
  • SB
    Stephen B.
    2 May 2019 @ 04:58
    Great interview and it doesn't surprise me in the least that the FED/lenders/industry etc. have been keeping the lid on some of the stats Keith referenced. The bull market in housing, over the last twenty years, has been driven by increasingly higher leverage but the party had to end one day. Looks as if that day is here.
  • JP
    John P.
    28 April 2019 @ 23:18
    I live in socal where the prices are absolutely insane and I really don't get how anyone could afford the asking prices on even the cheapest of places. On the other hand I'd like to see this argument placed alongside the supply and demand of the housing economy. In the west coast markets, especially LA, there simply isn't enough supply to serve demand. Places you wouldn't want to live when I was growing up are now unattainable by young couples with household incomes over 6 figures. The lingering question is, just how many millennials are there with savings who would like to own a home but don't because they are priced out of the market? While owners would hate the idea of a 20-30% decline in home prices, I imagine there's a lot of buyers out there who would enter the market.
    • SB
      Stephen B.
      2 May 2019 @ 04:22
      It is pretty obvious to me that that the only way millennials are going to be able to enter the market is with such a correction. It has to happen soon or later.
  • cr
    chris r.
    29 April 2019 @ 01:25
    Excellent interview! Thank you! I'm in Vancouver and sold a year ago - I would enjoy an interview focussed on the Canadian real estate market with some discussion about Home Capital and Equitable Group and other potentially vulnerable mortgage lenders. Cheers, Chris
    • SB
      Stephen B.
      2 May 2019 @ 04:18
      I sold in Vancouver a year ago too. The market looked way too overpriced. The crunch will likely come when those thousands of condos currently under construction near completion. We will see then how many of those pre-sale contracts hold up but I suspect most of them will prove unenforceable.
  • TJ
    Terry J.
    30 April 2019 @ 18:52
    Wow! A fascinating insight from Keith into a market that I thought, living in the UK, was well on its way to steady recovery after all the terrible greed and crooked dealings of the sub-prime decade leading up to the 2008 implosions! Just shows how little I probably know about US housing. Thank you RV for the comprehensive and diverse views and opinions on so many valuable sectors and asset classes.
  • KB
    Kirk B.
    28 April 2019 @ 05:12
    Question: It appears from the tables presented that the problem with delinquent, non foreclosed loans is greater in states with cumbersome judicial mortgage foreclosures, then in states such as California, with more expeditious deed of trust foreclosures. It is my impression that these procedures plus rapidly rising home prices has resulted in delinquent loans in California being more successfully cleared. Am I correct?
    • KJ
      Keith J. | Contributor
      30 April 2019 @ 01:56
      Kirk, Frankly ... No. The actions of lenders and mortgage servicers which I discussed have little to do with whether the state is a judicial foreclosure state or not. California has more modified mortgages than anywhere else. Good luck trying to find accurate up-to-date data on mortgage modification re-defaults in that state.
  • CM
    C M.
    29 April 2019 @ 15:45
    As stated by others, excellent interview. I read a lot of financial press and have never seen these numbers. One question, how do investment companies play into this market? I know in the Nashville area, investment companies are big buyers of homes - taking them off the market and turning them into rental properties. Seems like this "business" came to life after the 2008/2009 downturn. According to research out of TSU, Wall Street investment companies own 5,000 homes in the Nashville area. Seems like this would provide a buyer for banks to unload foreclosed homes. As an aside, good friend works for a big commercial real estate developer in the Southeast. He told me they are starting to sell off properties. Not making many acquistions due to the low cap rate. Too much cheap money chasing deals.
    • KJ
      Keith J. | Contributor
      30 April 2019 @ 01:51
      Investment companies simply don't own enough houses to make them a major factor in any major metro.
  • BT
    Bryan T.
    29 April 2019 @ 21:27
    This got my attention as I'm shopping for a house here in the northern suburbs of Atlanta. My brother has been a real estate agent and investor for quite a few years so I sent him the transcript and Keith's recent article on Marketwatch. His reply: I think he is too focused on the major coastal cities and mega-sites, outside of these areas the local economic, taxes, migration/demographic climate dictates the market absence of major systemic financial events but even still, not to the same impact as those areas. He may have a point of suppressing foreclosures but again I think that would not be the case in most of the country where inventories are extremely low and would seem to me that getting the property back on the market would be an incentive to the banks and most have been cycled through where I would choose to live. I have heard of institutional investors buying bundles of foreclosures and turning them into rentals which enables them to sort of dictate the rents in those areas, another issue but again mostly in the production and cluster housing markets which I would avoid altogether. But this may be an incentive for banks to hold and sell to them incrementally. Find something unique about the location/property, avoid huge Planned Unit Development (PUD), buy in the outlier areas near major roads and let the market catch up, select a floor plan that gives you options to rent with a first-floor master. I personally would also avoid condos or attached housing for a list of reasons, but primarily they are the first to go south in a bad market and nothing sets you apart from the same units/styles that are in foreclosure attached to your building dragging everyone down. At least make sure they put a limit to the percentage of rentals allowed in the By-Laws. I would say the exception would be ones that are smaller developments, close to something exceptional, age restricted etc... I don't think we'll ever see double-digit interest rates in our future so home prices are not going back to where they were 12+ years ago nor should they with land scarcity and the technology/energy/maintenance savings that did not exist just years ago which is another reason I like new construction and an Energy Star Certified Home like ours...Happy House Hunting!
    • KJ
      Keith J. | Contributor
      30 April 2019 @ 01:49
      I'm not quite sure how to respond. No surprise -- your brother talks like a broker. If you go back several columns or housing market articles, you'll see that I try to give the reader a feel for major markets all over the country. I see things and write about factors that brokers never see. I write for those who have some interest in housing markets -- owners, potential buyers, investors, potential sellers. My goal is to give them information to make them smarter investors or able to make better decisions.
  • JM
    John M.
    25 April 2019 @ 04:49
    Great insights and real trends. I own a business that serves real estate pros and home sellers. Over the past six months, in the Denver metro, we have seen a significant increase in the number of homes coming to market while simultaneously seeing the amount of time a home is on the market nearly double. For the first time in 8 years we're seeing price reductions. That is only going to increase in the months ahead. Being in the business over a decade, now is not the time to buy. As an idea for another conversation, I'm convinced a big part of the real estate boom has been QE fueled low interest rates -- particularly for first time buyers under the FHA limit. Real estate is like a bond and when rates drop, prices rise. I have employees, buying more expensive homes (than I did at their age) on less income (that I had at their age) and that purchasing power is entirely rate driven. Take that away, or change that dynamic and real estate is not strong. Anything over the FHA limit, particularly low to mid-luxury properties around or above seven figures, and those homes are taking months, if not years to sell ... even in hot markets like Denver. Anyone want to take up that as an Expert Interview topic?
    • KJ
      Keith J. | Contributor
      25 April 2019 @ 13:17
      John -- Thanks for the ground level confirmation of what I was saying about the cooling off of formerly hot markets in the West.
    • CM
      C M.
      29 April 2019 @ 15:34
      Using Zillow, I track markets in Nashville, Charleston SC, Charlotte, and Boone/Blowing Rock. While anecdotal, noticed a trend of properties reducing prices - particularly in the severly overpriced Charleston market. Living in Nashville, you are seeing homes in the suburbs sitting unsold longer, while homes in the downtown area appear to still be selling at high prices.
  • JR
    Jason R.
    26 April 2019 @ 22:08
    I lived in Phoenix during the 2008/2009 property crash. Banks were very slow to foreclose on properties with negative equity immediately after. Lots of housing left unused, and many owners stopped paying their mortgages on underwater homes.. Once the market picked back up in 2012 (and houses began to show equity against mortgages), the banks foreclosed en masse. Once the bank knew they could get a return on the house, they foreclosed, sold the house and recovered funds. In other words, once economically viable -- the banks took over the house Prices are much higher since the bottom of the 2008 recession. Why do you think loan holders would allow their customer's to not pay? Especially for 5 years. I understand in the middle of 2008 that it would be too difficult to foreclose on all of that inventory. But what is the rationale for not foreclosing, when the asset has appreciated in value and the market is relatively tight in supply?
    • KJ
      Keith J. | Contributor
      28 April 2019 @ 16:43
      Jason, Unfortunately what you say about Phoenix is incorrect. I have a good friend in Phoenix who is a real estate broker and has been sending me his charts since 2011. Unlike most other metros, mortgage servicers began foreclosing in droves by the fall of 2008. Prices collapsed for several years and turned around only after more than 100,000 homes had been foreclosed and sold.
  • NI
    Nate I.
    28 April 2019 @ 04:55
    Thanks so much Kieth! That was riveting content. Hope you'll come back to RV soon! I would like to hear more about the lender side. After years of non-payment, it would seem to me that lenders would be pushing much harder for foreclosures. What is their thinking? Surely they can't believe that squatters will suddenly start paying again.
    • KJ
      Keith J. | Contributor
      28 April 2019 @ 16:27
      Thanks for the kind words Nate. It's baffled me for years why the lenders don't begin foreclosing on these long-term deadbeats. I've learned that the decision is more in the hands of the mortgage servicers than the lenders. Servicers could care less about who actually owns the mortgage.
  • KB
    Kirk B.
    28 April 2019 @ 05:16
    Thank you Realvision TV for this unique, insightful view regarding the housing market. Please provide more expert views and Interviews about the housing market and other real estate markets.
  • WB
    William B.
    26 April 2019 @ 02:27
    Millions of mortgage holders are not paying at all? How many million? The federal reserve says that about 2.5% of mortgages are in arrears, which doesn't seem that alarming. This is a bad talk, because it doesn't put the problem into perspective and is overly alarming.
    • KJ
      Keith J. | Contributor
      26 April 2019 @ 02:34
      William, You need to look at the 5 tables I presented very carefully and listen to my explanation. I thought I explained my perspective pretty clearly. Be very careful about what you believe from the Fed.
    • CM
      Carl M.
      27 April 2019 @ 19:24
      ...and you can choose to believe somebody who disregards statistics as “wonky”. I would recommend doing a google search on the matter after listening to “Mr.Wonky.”
  • SU
    Shakeel U.
    24 April 2019 @ 23:27
    Very insightful, it would be great if RV could do a video for the UK housing market
    • JS
      J S.
      27 April 2019 @ 08:25
      I’ll second that
  • BB
    Brian B.
    26 April 2019 @ 22:05
    Too wonky for this audience perhaps, but the reason people continue to live in houses without making mortgage payments is that during the Mass Fraud of 2004-2008, the MERS system destroyed the legal documents proving title ownership. State Law in many states requires proof of title to foreclose. The people aren't 'deadbeats', the people who implemented MERS committed serious crimes, but were never prosecuted.
    • BB
      Brian B.
      26 April 2019 @ 22:08
  • PB
    Pieter B.
    26 April 2019 @ 07:03
    Excellent work Keith! Massive thanks! A real eye opener!
    • KJ
      Keith J. | Contributor
      26 April 2019 @ 19:07
      Thanks so much, Pieter. I publish and interview for viewers like you.
  • KC
    Kenneth C.
    26 April 2019 @ 14:32
    very informative. thx
  • ph
    phil h.
    26 April 2019 @ 07:03
    Just excellent. Looks to be Good solid argument, but difficult for me to judge so far away. It’s pretty damning and scary.
  • LC
    Liliana C.
    25 April 2019 @ 05:40
    This was eye opening to say the least. I live in bubble land Los Angeles where prices around me are now higher than at the peak of 2006! It’s fascinating to hear what’s going on in the rest of the country with re-defaults and people not paying their mortgages for years. In Los Angeles people stopped paying for a couple of years during the GFC while their mods were in process but don’t think anyone would be allowed to stay without paying now. Lender can easily foreclose and sell. Keith, is there any city or area you would consider buying today? Thank you!
    • KJ
      Keith J. | Contributor
      25 April 2019 @ 13:13
      When I started researching this years ago, I was shocked. Now I have found hard evidence that the lenders and servicers just decided not to do anything with many, if not most of these long-term delinquents. As for buying anywhere, I said in the interview that I would not buy anywhere right now. Sit tight and see where we are in a year.
    • RS
      Robert S.
      26 April 2019 @ 01:42
      Use no leverage and buy for cash flow. Pretty safe 20%+ returns where I live on rental property
    • CS
      Charlie S.
      26 April 2019 @ 05:18
      @Robert S. Where do you live?
  • TC
    Thomas C.
    24 April 2019 @ 23:10
    By the way, thanks real vision for a excellent show as we do not see many real estate focused shows. I would like to see more episodes on real estate...both residential and commercial/REIT's. That was an interesting table Keith showed of states % of delinquencies that were over 5 yrs.
    • KJ
      Keith J. | Contributor
      26 April 2019 @ 02:43
      As you saw in that table, Fitch Ratings has updated the original numbers 3 times with little change between 2016 and 2018. It tells me these deadbeats have no intention of paying off their mortgage and are not concerned at all. But this game cannot go on indefinitely.
  • DM
    Don M.
    25 April 2019 @ 17:47
    Don't these show up in bank profits? I don't understand how they can just let them sit delinquent without a major hit to their income.
    • GB
      Gordon B.
      25 April 2019 @ 20:55
      The requirement of mark to market was suspended 10 yrs ago.
    • KJ
      Keith J. | Contributor
      26 April 2019 @ 02:38
      That would happen only when they decide to write the loans off. Back in 2009, the FASB changes enabled the banks to determine when loans needed to be marked to market. Ever since then, bank accounting has been little more than a joke.
  • ss
    steve s.
    25 April 2019 @ 06:08
    Keith, in regards to the seriously delinquent chart, is it possible that these buyers are a month behind on their mortgage for the past 5 years. that would still make them delinquent, but not as bad as not paying anything for 5 years.
    • KJ
      Keith J. | Contributor
      25 April 2019 @ 13:11
      Not really. These are seriously delinquent deadbeats who stopped paying at least five years ago and about whom the mortgage servicers have simply done nothing.
    • RS
      Robert S.
      26 April 2019 @ 01:39
      I’m in real estate. I met a seller today who hasn’t payed his mortgage in 1 year. Not a dime. He still has the property...
  • NR
    Nelson R.
    26 April 2019 @ 00:56
    11:32-11:27 pure gold
  • SP
    Simon P.
    26 April 2019 @ 00:33
    Keith, I am trying to understand if the lost of those assets are on the balance sheet of the lenders. Gordon B below said the requirement of mark to market was suspended 10 years ago. If they have been depreciated, I’ll sleep better at night because if they don’t we might have big problems if the rate rise against, even a bit.
  • LJ
    Lucas J.
    24 April 2019 @ 17:45
    Where are these people who haven't paid their mortgage in 5 years, I just can't imagine that, and I am as bearish as they come. Do they live in the middle of the country?
    • BC
      Brent C.
      24 April 2019 @ 18:27
      Keith, not questioning your work, but just curious where one can find the data on the stats you mention and Lucas references above.
    • KJ
      Keith J. | Contributor
      24 April 2019 @ 20:51
      They are all over the country, but more of them in the NYC metro than anywhere else.
    • RM
      Richard M.
      25 April 2019 @ 13:30
      I personally know someone here in Annapolis, MD who lived in a water front home (on the Chesapeake Bay) that got into financial trouble when his mortgage went underwater and he stopped paying on the loan. He continued to live in the house for 4 years (occasionally getting a threatening letter from the lender but never any action). As the RE market finally started to recover in the last few years the lender finally foreclosed on him - but he lived rent free in a very nice house for 4 fricking years!!! Not bad (if your conscious can take it).
    • AH
      Aaron H.
      25 April 2019 @ 20:09
      Any idea what the average value of the underlying asset? My intuition tells me that the assets of real value foreclosed and sold off first and what's left is the high hanging fruit that has a high cost to recapture value ratio.
  • MS
    Matt S.
    25 April 2019 @ 18:53
    Very good... also saw that US Housing Starts have fallen to a near 2-year low in March and that US Building Permits fell to a 5-month low also.
  • BW
    Bryan W.
    25 April 2019 @ 01:36
    Keith is kind of being an alarmist. He seems to ignore that over the past 7+ years the economy has improved and the unemployment rate has dropped materially. Through the Great Recession, many people became delinquent on their mortgage when they lost their job. That borrower eventually regained employment, and the lender was better off allowing that borrower to stay in the home with a modification vs. liquidating the property through an expensive foreclosure process. Delinquent mortgages are not currently a problem to the housing market and won’t be until the next inevitable housing cycle downturn(a ways away in the US). If the delinquent loans outstanding continue to sit in limbo, they will result in larger losses for lenders(or fewer gains for investors that bought the troubled loans at discounted prices) who are unable to proceed with foreclosures. The majority of these severely delinquent loans aren’t sitting around because of the lenders choice. At this point the great majority of defaulted loans have been worked through the system. The delinquent loans left are usually stalled because of the courts and the lengthy foreclosure process, missing documentation that prevents the lenders from moving forward with a foreclosure, savvy borrowers counsel(and/or weak lenders counsel) that are able to take advantage of the system and stall for many months and years. The pressure in the housing market today is really at the higher end in the north east US which has been accelerated by the removal of the SALT deductions and the reduction in the amount of interest you can deduct if you take out a larger mortgage.
    • KJ
      Keith J. | Contributor
      25 April 2019 @ 01:41
      Alarmist? Wow, that seems a bit excessive. Did you look carefully at my five important tables we posted? Those numbers are solid. You can disagree with the conclusions I draw from them, but they do tell an accurate picture of what has happened.
    • PP
      Patrick P.
      25 April 2019 @ 17:29
      The excesses in the mortgage market brought about by Greenspan and his cheap money were beyond comprehension. In a free market excesses happen all the time and the provider of those excesses usually are punished financially. The providers and benefactors of this debacle where the banks and mortgage providers. However through government intervention (mainly the Fed) they have manage to avoid the financial punishment and pass it off to the American taxpayer. That occurred on Sept 7, 2007 ...The bailout of Freddie Mac and Fannie Mae... Yes people are living in homes for free and "YOU" the taxpayer are complicit.
  • SM
    Sean M.
    25 April 2019 @ 04:59
    Maybe someone can add or detract from this but my understanding of this would be: The homes went into foreclosure years ago during the financial crisis, and the debt was transferred to mortgage-backed security holders (lenders). Some may have held the securities but most were sold to hedge funds and other buyers at a steep discount, maybe enough to where the discount and the ones who pay their mortgages make it profitable. Point is that the lenders are not suprised by the forclosures and they would be priced into the securities by now. The other conclusion that I take is that the housing price increases should be a little more subdued due to the fact that the supply of houses is being artificially propped up by not foreclosing on these homes or at least doing it slowly so they can offload a little at a time instead of dumping everything like they were doing up until 2010. Therefore this wold be more of an issue with housing prices and influences financial markets but are not a suprise to them.
  • KS
    Kathleen S.
    24 April 2019 @ 16:41
    I sold my house five years ago, and have been renting. I will not put my toe back into the housing market until it corrects. I am always shocked when I see people buying homes now, the ignorance is breath taking. How can people do so little research or not even to attempt to understand the market they are buying into???
    • JL
      J L.
      24 April 2019 @ 22:37
      that's just what you do in many countries, get a mortgage (max out) and buy a place
    • RI
      R I.
      25 April 2019 @ 01:35
      Lol Kathleen how much upside did you forgo in those 5 years? 30%? Perhaps more. Perma bears vs perma bulls. A tale as old as time.
  • RD
    Rahul D.
    25 April 2019 @ 00:13
  • RK
    Robert K.
    24 April 2019 @ 23:14
    eye opening. thank you very much!
  • GG
    Guillermo G.
    24 April 2019 @ 23:00
    So, here we go again? So they only hid the elefant in tha attic for the meantime with the hope that the problems would fix by themselves? Jesus!
  • JL
    J L.
    24 April 2019 @ 22:40
    got to keep in mind property pays high dividends in some cities, profit is not just capital gains
  • CJ
    Chris J.
    24 April 2019 @ 20:22
    If one hasn't paid a dime on their mortgage in over 5 years (and still living in the home? This seems absurd), wouldn't this loan have been written off years ago? If that's the case then it's already accounted for and there shouldn't be a shock to the system. And any home that has been sitting in default for years must be in a low-demand area or the banks would have sold them as prices appreciated. Most major metros have been undersupplied in the last 10 years, hence prices rising. Trying to equate this to the '08 housing crisis is non-sensical.
    • KJ
      Keith J. | Contributor
      24 April 2019 @ 22:20
      I know it sounds crazy, but those figures from Fitch Ratings are rock solid. As I explained, the servicers stopped foreclosing several years ago. Most of these deadbeat borrowers stay in their because they know they won't be foreclosed and evicted for years. Apparently, no one else except me wants to report what has been going on.
  • PP
    Patrick P.
    24 April 2019 @ 11:14
    Keith knows his stuff...add in the student loan problem that stymies first time home buyers and the demographics of the baby boomers and their need to unload the McMansion, the heyday for housing looks bleak.
    • BB
      Bullionaire B.
      24 April 2019 @ 21:25
      Indeed... indeed.
  • TC
    Thomas C.
    24 April 2019 @ 16:07
    Good interview and interesting points. People forget about the modified loans defaulting behind the scenes. Also, to prevent foreclosures, banks sold a lot of the subprime era notes to hedge funds at big discounts, and the hedge funds were in a much better position to modify being "into" the note at a much lower price. The thing is, I have been hearing about this "shadow inventory" story for 7-8 years from the housing bears. About all these supposed homes that people are living in and not paying, etc... Not sure if there is any really good solid statistics about this. Some other things about this cycle. The last almost 10 years, the new home loans underwritten post 2008 crash are some of the most conservative loans ever underwritten. The charts also show FAR less new housing has been built this cycle then any going back to WW this means much less supply. Also lots of cash purchases this cycle, and you can't foreclose on those. And when Keith says inventory is rising in places like Seattle, Denver, is rising from a record low number, and inventory is still very low. When something goes from 1 to 2 that is a 100% increase, but its still a low number. So... I think some high end markets could come down a bit for sure, but I do not think we will see a big downturn nationally in housing this time. I think places like NY, NJ, CT especially due to low population growth, high taxes, and the new tax laws...could get hit worse though.
    • KJ
      Keith J. | Contributor
      24 April 2019 @ 21:00
      Good point about rising inventory in places like Seattle. Yes, doubling is from a low number a year ago, but it's a worrisome matter. If it continues along with slowing sales, then prices will start to decline. We'll have to watch closely.
  • DM
    Dean M.
    24 April 2019 @ 16:40
    Keith, is they are not paying - which lenders are not getting paid for their loans? where are these numbers showing up? (not questioning your thesis - just trying to understand who is taking the losses here). thanks
    • KJ
      Keith J. | Contributor
      24 April 2019 @ 20:57
      Hard to know this because the data providers are holding back so much. Lenders make it hard to find out either from call reports or 10Qs.
  • PC
    Peter C.
    24 April 2019 @ 17:36
    May I request an interview with Hedgeye's Josh Steiner for a counter argument?
    • JW
      Joel W.
      24 April 2019 @ 19:37
      I would also like to see a solid counter argument. I have been leaning towards this view for the past 18 months, especially since cash costs of renting vs. owning is about breakeven in my area.
    • KJ
      Keith J. | Contributor
      24 April 2019 @ 20:54
      I'm not sure what you are requesting. I don't debate with anyone. Serves no purpose. Have Josh Steiner call me if he wants to talk.
  • JK
    John K.
    24 April 2019 @ 20:44
    RV, please consider having Keith back on a more regular cadence (minimum of quarterly). Thank you!
  • SS
    Sam S.
    24 April 2019 @ 17:12
    Keith is the real deal. Modified loans are done to change the legal terms of the documents, so borrowers could not just walk away from loans without recourse. Just like student loans, these loans now follow the person for life, or at least chase them around for a long time. Lenders lobby tried to get the laws changed, but mostly only achieved changes for new loans, refinances, modified loans and home equity loans. Those not paying for years on their delinquent loans, still living in the property, tend to take care of the property, for the lender, while occupying. They trash the houses, steal the appliances all before leaving when foreclosed on. The whole mess is con job swept under the rug to build confidence in the system, rather than letting it implode and then rebuilding it. Sort of like all these years now, hearing from the experts on RV and confirming so. Thanks Keith!
  • AB
    AJ B.
    24 April 2019 @ 17:08
    No wonkiness. Love it
  • SM
    Sarit M.
    24 April 2019 @ 16:37
    As a SF Bay area local, and as a prospective home buyer I've been shocked at the rate at which home prices have accelerated to the upside since 2010. Personally, i don't want to get into this market at this time, so i have a lot of confirmation bias towards Kieth's view point. Can anyone else provide counter points to where this reasoning might have flaws...? I'm not qualified enough in real estate to make comments either way. Lastly, thanks Keith for sharing your analysis. I was getting out numbered in my views on this matter, at least in my geography. Especially with all the tech IPOs coming out and purportedly blowing up the housing market.
  • fc
    flavio c.
    24 April 2019 @ 12:11
    He overblown things IMHO. He needs to be more data dependent.
    • KJ
      Keith J. | Contributor
      24 April 2019 @ 15:08
      I'm a little puzzled. There are five important tables in the interview which I discuss. You may want to take another look at them.