Next Big Downdraft For Housing Market To Start Soon | Melody Wright

Overview

Housing analyst Melody Wright (on Thoughtful Money with Adam Tagert) argues the U.S. housing market is still frozen and broken, with broader downside risk that could rival or worsen aspects of the 2008–09 crisis—but playing out more slowly and unevenly across regions.

Main claims about the current market

• Few buyers / low transaction volume: Wright says the market is “frozen” because high unaffordability prevents most buyers from transacting. Activity is largely limited to higher-priced homes and borrowers using government programs (FHA/Fannie/Freddie).
• Regional bifurcation:
  • South and West: relatively stronger sales volume and year-over-year increases in sales, often paired with price declines (more “price discovery”).
  • Northeast/Midwest: weaker sales volume and year-over-year declines in sales, helping explain why prices are not uniformly falling yet.
• Prices haven’t fully “rolled over” nationally: depending on the data series, Wright notes:
  • List prices have been down year-over-year for months,
  • but some widely cited measures (e.g., Case-Shiller) may not show year-over-year declines yet, even while prices drift or fall month-over-month in the selling season.
• Prices are being “set” by the remaining buyers (wealthier/financed segments), creating a distortion: not a healthy market, but a thin one.

Why distress is expected to worsen (timeline: Q3/Q4 → Q1)

Wright’s forecasting chain:

1. Distressed sellers are rising, driven by unaffordability and housing cost pressures.
2. Early delinquency is increasing non-seasonally, which she calls especially concerning:
   • Typically delinquency improves seasonally (spring/tax refunds),
   • but she says it keeps building instead.
   • Early-stage delinquency matters because it often signals borrowers are truly out of options; once credit is damaged, fewer remedies remain.
3. Foreclosures and distress sales are expected to rise into Q4, with material foreclosure sales by Q1.

Supporting details she cites:

• Foreclosures reportedly rose 26% YoY in April and 14% YoY in May (June numbers not yet confirmed).
• A major driver is tighter restrictions on an FHA “loss mitigation”/mediation-style program, which she argues causes more borrowers to fail out of workouts.
• She claims up to ~50% of borrowers are failing out of final workouts that now require a trial payment, creating a pipeline into worse delinquency.

“No buyer” problem and the expected role of government

Wright argues that, unlike the last crisis—when institutional investors helped absorb inventory—this time there may be no comparable private-sector rescuer:

• Millennials/younger buyers “can’t afford it,” and institutional buying is viewed as constrained.

Because of that, she predicts government entities (or counties/municipalities) may end up buying/handling housing assets to reduce blight and manage inventory, including scenarios where government takes custody through county foreclosure channels such as:

• property tax foreclosure
• HOA disputes
• other seizure pathways

She suggests this could increase government-linked holding/servicing of distressed assets, referencing historical parallels like Fannie/Freddie involvement with REO/servicing.

Institutional investors, regulation, and blight concerns

• Wright notes that institutional ownership previously helped stabilize markets but also created vulnerabilities (investors can “dump” inventory if distressed).
• She indicates that while policymakers talk about limiting institutional ownership, she does not see a full repeat of the political “institutional rescuer” story.
• When the conversation shifts to “prevent blight vs. allow free-market outcomes,” she:
  • acknowledges Detroit’s earlier partial turnaround, but argues investor interest is cooling again (slower sales, price declines, growing inventory),
  • criticizes government-affordable-housing securitization and tax-program structures as often not incentivizing the right behavior (she uses strong “scam/roach motel” language).

Policy example: New York City rent/landlord restrictions

Wright and Tagert discuss NYC proposals such as rent-freezing and limits on landlord practices (including background/credit checks). They argue:

• Such policies can reduce landlord participation, worsening supply and potentially increasing vacant/off-market units.
• Ideological politics may drive change more than practical outcomes.
• Wright says she’s monitoring whether effects spill into nearby markets; she believes there may have been some “boost” effects in places like Florida.

Practical advice for buyers and sellers

Wright’s underwriting-like guidance:

• Housing declines may be slow and uneven, not like a stock V-bottom.
• People should avoid FOMO, make offers based on true value and household affordability, and expect that “deals” often require effort and time.
• She recommends searching for distressed sellers (e.g., foreclosures, motivated homeowners) and doing homework—rather than assuming a simple Zillow price drop equals a bargain.
• For many buyers, she suggests to stay out now in much of the South due to “catching the falling knife,” especially where distress and Q1 foreclosure sales could intensify.

Long-cycle “land cycle” claim (timing accelerator)

Near the end, Wright adds an additional framework:

• She says she examined an 18-year land/speculation cycle and that it places the U.S. market near the end of the current cycle.
• Interpretation: the downturn could deepen into the near future, with price declines possibly becoming more visible by late 2024 or into Q1 2025.
• She cautions it may still be a long process, citing a prior cycle that took 4–5 years to bottom.

Overall forecast headline

• The housing market is set up for more distress sales by Q4, then a wave of foreclosure activity by Q1.
• Pricing pressures are expected to spread as early delinquency converts into later-stage problems.
• Regions with less “buyer support” and rising delinquencies are expected to be most vulnerable.
• If a broader financial shock occurs (e.g., a stock market correction), she suggests declines could become deeper, even if it doesn’t necessarily shorten the overall timeline.

Presenters / contributors

• Adam Tagert — host, Thoughtful Money
• Melody Wright — housing analyst, founder of Thoughtful Money