Investor Sentiment Quickly Turns as Home Sales Bottom

Dave:
The economic picture is right now pretty annoyingly, still not clear. We don’t even know if interest rates are gonna keep climbing or if they’ll finally start to stabilize. We don’t know if inflation’s going to fade or flare up once again. And with so many moving parts, we don’t know which real estate markets will emerge as true winners or losers in the next couple of years. So today we’re gonna tackle these questions head on because every shift in the economy directly impacts you as an investor, and we want you to know what’s going on as quickly as it happens.
Hey everyone, it’s Dave. Welcome to On the Market. Today I’m sitting down with special guest who’s a repeat favorite here on the show. It’s Rick Sharga. Rick is the founder of CJ Patrick Company and has decades of experience analyzing the real estate market. And today we’re gonna be diving into the big economic questions looming over us in 2025. Of course, we want to know what these things mean for us as investors. And we’re gonna talk about some of the latest research Rick has been doing at CJ Patrick about how investors, generally people like you and me are feeling about the housing market. Let’s get started. Rick Sharga, welcome back to On the Market. Thanks for being here again.

Rick:
Always great to have these conversations, Dave. Thanks for having me.

Dave:
Yeah, I’m excited ’cause I think everyone who’s listened to this show knows my opinions about the housing market and probably tired of hearing me blab on about it. So it’s good to have a, a more professional, uh, person, give us their opinions and you are the, the right man for the job. So tell us a little bit just how are you feeling in the beginning of 2025? How would you describe the current state of real estate investing and or the housing market in general?

Rick:
Well, I I think it’d be, uh, premature to say I’m optimistic, but I do think the worst is behind us. I, I think after selling 6 million existing houses in 2021 and 5 million in 2022, and then 4 million in 2023, and again in 2024, it, it does feel to me like the market is kind of bottomed out and there’s some data that that supports that. So it, it, it does sort of feel like we’re, we’re gonna begin crawling back outta the hole that we’ve dug over the last couple years. And I do have a sense that things are gonna be more positive in, in 2025 than they were last year.

Dave:
I’m with you on that one. The data does seem to back that up.

Rick:
Mm-hmm .

Dave:
I’m curious though, when you talk about positivity, are there any specific metrics or areas that you’re particularly feeling might start to turn around?

Rick:
Yeah, well, the easiest one to talk about is inventory. We have a lot more to buy, a lot more to choose from, uh, than we’ve had over the last couple of years. Uh, even though if you look at weekly inventory numbers, they’re a little bit down week over week. They’re still up about 24% from a year ago. And if you look at the trend over the last year, if we keep seeing inventory increase at the rate it’s been increasing over the last 12 to 18 months, we should be back to pre pandemic levels of inventory by the end of this year.

Dave:
Wow. Really?

Rick:
Yeah. And that, that levels off that playing field for buyers and sellers. It becomes, uh, a much less, uh, robust sellers market, if you will. Mm-hmm . Uh, and, and it gives buyers an opportunity to actually do some negotiating.

Dave:
That is very encouraging, I think for people who casually pay attention to the housing market or people who don’t listen to shows like this for Read Housing Wire, all the stuff that nerds in the housing market do they just look at price and they say, you know, oh, okay, has price bottom. But at least in my opinion, I think that sort of the key to the long-term restoration of some sort of health in the housing market starts there with, with inventory and trying to get just people buying and selling again, like that we can’t have a robust healthy housing market at this transaction volume, at least in my mind.

Rick:
Well, there’s a couple things to to consider there. Uh, the real shortage of homes available for sale over the last couple of years, uh, have been existing homes. It’s, it’s the homes that are currently occupied. Uh, and people have decided not to sell for a variety of reasons, mostly because a lot of them couldn’t afford to because they couldn’t afford to, to double their mortgage payments. And that that’s what happened when the interest rates doubled back in 2022. We’ve also seen builders come out of hibernation. So after a full decade where they weren’t building enough homes, it looks like we’re going to have completed about 1.6 million homes in 2024. Uh, and anything over one and a half million, we start to whittle away at that, that shortage. So this is feeling a lot better in terms of, of homes available to buy. And, and you touched on something really important, Dave, having a, uh, an ample inventory of homes available for sale slows down the competition among buyers, which then slows down home price appreciation. So most of the forecasts I’ve seen for home prices in 2025 show an increase of somewhere between two point a half and 3% mm-hmm

Dave:
.

Rick:
Year over year. And that’s basically the rate of inflation. So you’re really talking about housing prices not going up at all this year, and wage growth actually coming in at four point half, 5% year over year. So over time, the the affordability challenge that we’ve been dealing with, we’ll start to at least get a little bit better, you know, month over month and year over year.

Dave:
Yeah, I’m, I’m hopeful about that. Redfin released something a day or two ago saying that in 2024, at least it didn’t get worse. , which I’ll take at this point, right? It’s like, because as you said, wages got better and prices were, I think up even in real terms last year. But not huge amounts like we were getting used to seeing, it’s gotten a little bit better. And I know as an investor, people who own current properties, you wanna see your property values go up. But at least for me, someone who’s trying to do this over the long term, I would rather see some years of lower growth. Yes, I would wanna see my properties keep price with inflation, but I would rather see some semblance of affordability come back to the market. It’s better for, uh, society, but it’s also, I think, better for investors long term because you’re gonna be able to afford more. Um, and again, you’re gonna start to see just more transactions going on, which is going to allow you to see different types of deals, um, and hopefully better deals in the future as well.

Rick:
Well, the alternatives are bad too. So if we don’t see fairly long period, and I’m, I’m saying this could be two or three years where we see home price appreciation at very, very modest rates.

Dave:
Yeah.

Rick:
The, the alternative is you have home prices crash because affordability is the worst it’s been in 40 years right now. And, and that’s a combination of how high home prices got of mortgage rates doubling, uh, a couple of years ago. And wages not keeping pace with those home price increases until recently. So we’ve seen this movie before and, and when we’ve had these price shocks in the past, typically what happens is you have a two, three, maybe four year period where things just slow down. Sales volume slows a little bit, home price appreciation slows down a little bit as the market resets. And gradually over that period of time, all of these people, or a lot of these people with those three, three and a half percent mortgages wind up selling their homes for one reason or another. And the market kind of reestablishes itself at a new level and you move forward from there.
So, you know, patience is probably the right buzzword right now. If you’re, if you’re an investor, you don’t want to be chasing every deal that’s out there because some of them aren’t gonna a pencil out. And the other important thing, and I know I I sound like a broken record ’cause I think I say this every time you and I have a conversation, is the national numbers you and I talk about are good to establish a baseline, but they’re not what you’re gonna base your investment on. You need to know what’s going on in the market, where you’re buying, uh, where you’re selling, where you’re renting. And that’s what’s really critical. If you’re in Austin, Texas today, home prices are actually down year over year.

Dave:
Yeah.

Rick:
If you’re in most of the Midwest and at a huge chunk of the, the North Atlantic region, prices are going up at, at fairly high rates. So it really depends on where you are and, and what your, your time horizon looks like.

Dave:
Yeah, that’s a, that’s a very good point. And I think patience is the name of the game right now. There’s a lot of garbage out there, but there is some good stuff to buy too. You just need to, I think it’s more important than ever to really just trying, if you’re an investor, to buy undervalued properties. ’cause we can’t count on the appreciation, especially in real inflation adjusted terms like we, like we would in the past. You said something Rick, earlier, I wanna come back to just about the idea that the alternative is sort of prices crashing and coming down rapidly rather than the slow That I think we both think is more likely with more inventory coming on though, is there like an increasing risk that prices will go down if demand doesn’t keep up?

Rick:
I’m glad you mentioned that second part. ’cause we’ll, we’ll circle back to that demand thing in a second. Yeah. . Um, I think there is a chance, I I, and, and I would not be surprised to see prices go down marginally, but it’s gonna be a market by market phenomenon. If you look at prices across the country right now and what they’re doing, where we have the most inventory, we have either the lowest price appreciation or in some markets like Austin, uh, we, we actually see prices down a little bit year over year. Not a ton, but they are down a little bit. And I think that that gives people, uh, you know, pause because they’re not used to seeing home prices go down. Just doesn’t happen that often. So I, I think that will be one of the factors. Yeah. Uh, uh, but, but I, I don’t think we’re gonna see so much inventory coming to market that we’re going to have a a a huge drop off in home prices.
And one of the main reasons for that is the demand that you referenced. We have the largest cohort of young adults between the ages of 25 and 34 in the history of the country. The reason that’s relevant is because the median age of a home buyer, a first time home buyer is 35. Mm-hmm . So we’ve all been talking about the millennials coming to market now for what seems like the last a hundred years forever . And the, the number of millennials hitting 35 has not yet peaked. In fact, it won’t peak until next year. Interesting. Uh, and then it maintains a high level for a couple of years after that. And guess what, when Gen Z hits the market at that age, those numbers aren’t very much lower than the millennials would.

Dave:
Right.

Rick:
So we have probably somewhere between five and 10 more years of strong demand, increasing demand. We have pent up demand from the last couple years when, when millennials simply weren’t able to afford to buy properties. So I, I don’t see demand slowing down anytime soon. And honestly, all of the research I’ve been able to get my hands on shows that millennials and, and people in the Gen Z group are, are looking to become homeowners at every bit, uh, as higher rate as previous generations. So I, I don’t see demand falling off a cliff anytime soon.

Dave:
I don’t know if you hear this, but I hear this line repeated a lot where people are like, oh, millennials don’t wanna buy homes or Gen Z don’t wanna buy homes. It’s just, it’s not backed by any evidence whatsoever.

Rick:
That’s the beauty of social media though, Dave. You, you don’t need any evidence. We’re, we’re all experts at everything. Um, I didn’t know so many of my friends were experts on the topography of Greenland until just a couple days ago. So it’s crazy. But there’s no research, there’s no data to support the notion of millennials and people in Gen Z don’t wanna buy houses. In fact, as millennials are getting older, uh, what we’re seeing, i i is a fairly straightforward social phenomenon. We’re seeing millennials really getting their first good job later. Because you have to remember the, the first wave of millennials came out during a recession. So those jobs were hard to come by. They’re getting married later, they’re having kids later, and so they’re buying houses later mm-hmm . But when they buy them, they’re buying them in large numbers. And right now, millennials make up the largest group of home buyers in the country.

Dave:
Yeah.

Rick:
So I, I don’t really give any credence to any of those comments.

Dave:
Right. Yeah, I, I totally agree. And I think it’s important to remember that we use this word in economics demand, like that is a measurement of just desire, but demand is actually a measurement of desire to buy something and the ability to actually go out and buy it. And while the ability to buy homes has declined for millennials and Gen Z and pretty much everyone, all the surveys, as Rick was saying, like all of the sentiment analysis, all the, everything that you look at shows that the desire has gone nowhere. And so it’s really, you know, my thesis has been just about affordability. As soon as affordability comes back, demand is gonna come back proportionately. And although it’s a small sample size, you know, for that hot second in August when we saw mortgage rates tick down to 6%, we saw an increase in demand. And although mortgage rates are wild and volatile right now, I think the expectation is if and when they do come down, demand’s gonna come right back with it.

Rick:
I would say there are three legs to the affordability stool. Uh, and, and home prices obviously are one of them. And I, I don’t expect home prices to come down significantly in most markets in the next couple of years. Mortgage rates are another, and, and it’s a very rate sensitive market right now. You, you pointed it out exactly right, August, September, mortgage rates came down to about 6% and we saw a flurry of buying activity. I think if we get mortgage rates down below seven in, in 2025, that’s gonna be enough to entice some people to come and come back into the market and, and we’ll see more buying activity. And I do think we’ll get those rates down below seven this year. I, I’m not as optimistic that we’ll get to six or even the low sixes because of other things that are going on. The federal reserves not likely to be cutting rates too much, uh, in the coming year. That kind of sets the baseline for, for, for lending. Bond market’s a little bit unsettled right now. And

Dave:
Yeah,

Rick:
And we saw bond yields on the, the 10 year treasury this year approaching 5%, which would make mortgage rates normally somewhere between six and a half and 7.5% just based on that metric. So they’ll come down a little. But the, the third, the third leg on that stool is wage growth. And we continue to see wage growth now that is outpacing both inflation and home price appreciation. And if home prices continue to settle down or we get mortgage rates down just a little bit and wages continue to improve, you know, at some point that affordability starts to feel a little bit better. And I think that’s, that’s really the key to, to making all of this work.

Dave:
Yeah, that, that makes a lot of sense. Um, I, and I’m, I’m with you on most of those things. So, uh, thank you for, uh, for sharing with us and your more informed opinion than mine. I, I agree. I, I’ve been trying to caution people on this show about rates. ’cause it’s easy to say, Hey, the Fed has said they’re gonna cut rates, mortgage rates are gonna go down, we’ve all seen in the last six months. It doesn’t work that way. No politician, even the Fed, you know, no government entity really controls what bond traders want to do and bond investors want to do. And they have a very big say, perhaps the biggest say in where mortgage rates are gonna go. And so it’s worth repeating ’cause it’s so important here. We’ve got plenty more to discuss with Rick Chaga, including how he’s seeing different markets respond to these 20, 25 shifts. But first, let’s take a quick break. Hey, investors, welcome back to On the Market. I’m here with Rick Sharga from CJ Patrick Company. Rick, I wanna turn just to some of the research that you do. ’cause you and your company, CJ Patrick, you conduct some really cool unique investor sentiment surveys. Can you tell us a little bit first about the survey and then what you’re seeing about investor sentiment these days?

Rick:
Yeah. My, my company partnered with RCN Capital, uh, private lender who actually probably deals with a lot of the folks who are watching your, your podcast. And we started doing a quarterly investor sentiment survey. And after we got a year of results under our belt, we, uh, we created an investor sentiment index that we published quarterly. Now that tracks investor sentiment across four different questions. Do you view the market as being better today than it was a year ago? Do you believe it’ll get better than it is today over the next six months? Uh, how many properties are you going to buy in the next year compared to what you did last year? And what do you think is gonna happen with home prices? And we, we throw those four criteria, the answers to those questions into a, a magic hat, wave our wand over it and come out with an index score . And, uh, we had four consecutive quarters where investors were increasingly optimistic.

Dave:
Huh.

Rick:
Uh, and then in the fourth quarter of 2024, for whatever reason, the numbers plummeted. Uh, we had a 27 point drop in the index.

Dave:
Wow.

Rick:
Uh, now some of this could be seasonal. We noticed that the score almost identical to where we were last period this time. But I, I think a lot of it had to do with changing market conditions. And you and I just talked a little bit about that. So when we went into the third quarter, which was the highest positivity index we’ve seen so far, mortgage rates had just stopped, dropped down. So financing rates for investors had had similarly started to come down. We were starting to see more buying activity. We were starting to see a little bit more energy in, in the housing market. And then over the course of the quarter rates continue to rise month over month, we started to see sales slow down a little bit, which is a seasonal thing, but, you know, margins were also starting to suffer a little bit for some flippers that, that we had surveyed.
Uh, and so I think a lot of it had to do with, with changing market conditions. And I believe, I won’t be able to prove this anytime soon, but I believe there’s a little bit of skepticism over the changing of the guard in, in Washington as well. We surveyed the respondents about some of the policies that had been, uh, talked about during the campaign. And their not all that enthused either about, uh, raising tariffs, which they think will increase their, their costs on repairs and renovations or on deporting a lot of immigrants because, uh, a huge percentage of, uh, residential construction labor is immigrant labor and a certain percentage of that is undocumented. So there could be a little bit of reticence about, uh, some of the policies that have been talked about during the campaign, but we’ll, we’ll see what happens, uh, when we do the first quarter, 2025 and see if the sentiment has turned around a bit.

Dave:
That tracks for me. Yeah. I think a lot of people were generally thinking that once the feds started cutting rates, it was gonna be this smooth linear path down towards better affordability and everything is gonna magically get better. And I’m with you that I think the long-term trend is down, but as we’ve seen, it’s gonna be a bumpy road down. And so I, I can understand that people who are just hoping for a smooth ride are pretty disappointed by that. I’m surprised to hear the, the part about the new administration coming in, not because anything you said is wrong. I just felt like we saw a little bump in the residential market. You know, I think the typical home buyer was starting to feel a little bit better about the economy from some of the other data. But I guess now they think about it, people who work in construction are probably very worried about tariffs. I think that’s one, one industry that could really get hit hard, um, in the short term, at least if there are big tariffs. Um, and like you said, deportation could infect labor so that could, could really, uh, impact this industry. Are these investors that you survey short term rental investors flippers long term mix?

Rick:
Uh, it’s a mix. We don’t pick the respondents necessarily. They’re kind of randomly selected.

Dave:
Okay.

Rick:
This particular survey, they skewed more heavily toward rental property owners.

Dave:
Interesting.

Rick:
Uh, and, and for what it’s worth the history of the survey, we have found rental property owners tend to be a little less optimistic than flippers. I have no idea why that is. Uh, but it is a pretty consistent phenomenon.

Dave:
I’m not surprised any of that. You have to be an optimist to flip a house. Right.

Rick:
You, you actually do.

Dave:
You gotta, you do, if you’re a little bit more risk tolerant, you have to be an optimist. I am an optimist in general, but with my investing, I’m very, uh, I’m pretty conservative. So I, I think I’d probably be like the rental property. I’m gonna buy the solid risk adjusted returns and not shoot for anything too, too crazy.

Rick:
And our sampling also is pretty consistent with the, the, the nature of the overall market in that it’s dominated by small and mid-size investors. We have probably 10% of our respondents that you categorize as, as large investors or, or institutional investors. Uh, but the, but the bulk of the respondents are those small and midsize investors who make up the bulk of the market. Uh, by the way, the, I I, I’m, I’m with you. I was all surprised by the, the results, the previous survey, we’d, we’d ask them to predict who was gonna win the election

Dave:
Mm-hmm .

Rick:
Uh, and, and their, their answers skewed more toward Vice President Harris. And they also thought that Harris would create a, a more favorable, uh, investing environment and, and just on its face, I looked at that and I thought, well, the current administration, the Biden administration is pursuing some legislation that’s decidedly unfriendly toward investors. Right. Uh, raising capital gains taxes, reducing tax benefits, depending on how many rental properties you might own, putting a cap on the number of properties you can own as an investor. So you have all of that with the current administration, and you have a, another candidate whose whole career has been in real estate development. And you, you have to just assume

Dave:
Yeah,

Rick:
Right. It would be a more, more investor friendly market. But, uh, but people, people have their own opinions for whatever they, whatever reason. And it’s, it’s never, never a shortage of surprise when, when we see these answers.

Dave:
That’s why you gotta get the data. You can’t just make these assumptions. You don’t know, uh, how people really feel.

Rick:
One thing you might be interested in is, one of the findings from the research is, you know, the, the challenge is the investor side are always very similar. It’s high cost of financing, rising home prices, competition, lack of available inventory. But over the last couple of surveys, uh, something that’s really popped up in a meaningful way is insurance challenges.

Dave:
Oh, yeah.

Rick:
Uh, both the cost of insurance and the availability, or limited availability of insurance. And for about three quarters of the people who respond, it’s a factor when they’re considering making a real estate investment. And about half of them claim that it’s already cost them at least one deal. Huh. So it, it really is becoming part of the equation. And I I would submit it becomes a new consideration when you’re talking about affordability, both for your ability to finance a property or buy a property, or in some cases, your ability to hang onto a property as a homeowner.

Dave:
Totally.

Rick:
And, you know, between rising property taxes and rising insurance premiums, people who barely qualified for a mortgage may find themselves in a bit of, of financial difficulty as those ancillary costs rise. And, and that might be an opportunity for investors to be looking at is markets where insurance premiums are rising rapidly might be a market where you’re gonna have some distressed property opportunities, uh, sooner than later.

Dave:
Yeah, that’s a good point. We had someone on the show, I think it was back in May, I’m forgetting the name of the gentleman, but he was saying that in certain markets, I think Louisiana, Alabama were examples where taxes and insurance were equaling principle and interest on a mortgage, which is a wild thing to think about. I, I mean, I’ve been doing this for 15 years and when I first got it started, I mean, you didn’t really even think about insurance. No. You know, you’re just kind of like, it was like a box to check and now it’s a big thing that you really need to be thinking about. And I guess that the hard part about it, I don’t really have a point here, I’m just complaining, is that you don’t have any control over it. No. You know, like you, unlike maintenance or other parts of being an investor where you can have some semblance or control, you can plan for it, insurance costs depending on where you live, you know, you’re kind of at the mercy of the market and the mercy of these companies. And so, uh, it does feel like a, a new, not just cost, but risk, um, in the industry that I think everyone’s just kind of trying to figure out what it means.

Rick:
Well, I’m, I’m, I’m talking to you today from Southern California, which is experiencing some of the worst wildfires in the, in the state’s history right now in the Los Angeles area. And the, the estimated losses on those properties right now is somewhere between 250 and $275 billion.

Dave:
Oh my God.

Rick:
Now, the agencies believe that the insurance companies and the state insurance fund have the reserves to be able to cover that. But you, you have to know that premiums are gonna go up, uh, insurance is gonna be harder to come by. And that when you have an event of that magnitude, or what we had with hurricanes, Lene, and Milton on the east coast,

Dave:
Yeah.

Rick:
It’s not just gonna be those states where the premiums go up because the insurance companies can’t, simply can’t raise the rates high enough in those states to offset all their losses. So it gets spread around to pretty much everybody. And I think a a, a data point I just saw was that in the last three years, insurance premiums for homeowners across the country have gone up by 52% over the last three years. Oh my God. Wow. So it, it’s, it’s a real world issue. And, and to your point, it’s not something we ever had to think about. Um, certainly not something a, a loan originator or a a loan officer ever had to think about when writing a loan, but all of a sudden we’re talking about real money in these instances and it’s, it’s becoming more and more of an issue.

Dave:
Yeah. It really is. Uh, it, it’s something everyone needs to pay attention to. I think, you know, I’m trying to read the tea leaves and what this all means. It’s obviously a big challenge. It also makes me wonder if pe more people are just gonna rent. Like, you know, I, I just moved back to the us I was living in Europe for five years. I’ve been thinking about buying a renting, I’m, I’m going to buy, but was just like, man, do I really wanna deal with this? Like , I, and I do it as an investor, I’m happy to keep doing it as an investor, but for my primary, I was like, maybe I’ll just rent and not worry about insurance going up next year. But I think I, I don’t know if that’s just optimistic thinking that people are more rational. ’cause like, I didn’t behave rationally, the rational thing would be to rent, but I, I reacted emotionally and bought because I wanted to.

Rick:
Well, there’s short term, long term too, right? So if you’re, if you’re looking at it from a short term perspective, it’s a lot cheaper to rent than it is to to own in most markets right now. And you have those unknowns, like insurance premiums going up. But again, you know, if you’re renting it, it’s very likely your rent’s gonna go up every year as well.

Dave:
Yeah.

Rick:
If your landlord is getting socked with those unexpected insurance premiums, you, you know, who’s gonna wind up paying for those too? Yeah. And you don’t have the opportunity to build up that equity over time. So I still think for most families over the long run, home ownership is a, a better financial decision. Not all, but, but most, uh, and yeah, again, you have, you have to kind of get through some of this short-term, long-term mindset.

Dave:
All right. Time for one last quick break, but stay with us. We’ll get into the best strategies investors can consider to stay ahead in 2025 right after this time for one last quick break, but stick with us. We’ll be right back. All right. We’re back. Let’s jump into our final few questions here with Rick. Welcome back to On the Market. Let’s jump back in. That’s great advice. Do you have any other great advice for audience of investors from all your, your research and surveying that you’ve been doing?

Rick:
Yeah, I think the first time you and I ever talked, I was probably focused on the foreclosure market like a hundred years ago, I think. And it feels like that right now because there’s just about no foreclosure activity. So I know a lot of, a lot of investors like to buy those distressed properties. In a normal market, about 1% of loans are in foreclosure at any point in time. So we would normally have 500,000, 530,000 homes in foreclosure right now. Uh, there’s less than half of that. In fact, there’s about a third of that in, in the market today. Uh, so mortgage delinquencies are at all time lows, foreclosure activities at an all time low, partly because everybody has a lot of equity who’s a homeowner, even those homeowners in foreclosure. So once they get that notice, they’re not waiting around for the foreclosure auction, they’re selling their house to protect the equity they have in it, rather than risk losing it to a foreclosure sale.

Dave:
Yeah.

Rick:
So if you’re looking for those foreclosure opportunities, you know, don’t wait for the auction, don’t wait for the lender to repossess the property so you can buy it back from the bank. You’re gonna wanna reach out to those homeowners in the early stages of foreclosure. You’re probably not gonna get quite as much of a discount as you’re used to.

Dave:
Yeah.

Rick:
Uh, at an auction or a bank owned property sale. Uh, but, but you, you do have the opportunity to create kind of a win-win scenario where that homeowner gets to keep most of their equity and you get a property that’s probably in pretty decent condition, uh, and, and get it for a little bit below full market value. So my advice to people who are used to buying foreclosures and looking for foreclosures is, you know, don’t wait for the auctions in 2025. Go, go fishing upstream.

Dave:
That’s very wise. Yeah. That, I mean, I don’t know this nearly as well as you do, but when you just look at, uh, some of the data, you see that foreclosures are just so low and it’s not gonna be a major contributor to housing inventory or supply in the next couple of years. But, uh, like you said, there still is gonna be some distress. There’s still gonna be some motivated sellers and, uh, you just have to look somewhere else to find them. I’m curious, Rick, you know, do you think there’s any risk of that changing? When I talk about these things, I often hear people say, you know, credit card defaults are going up, credit card debt’s super high, national debt is super high, we’re overdue for some sort of recession, and the labor market’s gonna deteriorate. How do you think about the risk of some of those things happening and how they might impact the housing market?

Rick:
Well, consumer debt’s at an all time high. It’s at $18 trillion. But, but keep in mind about 13 trillion of that 70% is mortgage debt.

Dave:
Yes.

Rick:
And that mortgage debt’s offset by $35 trillion in homeowner equity. Uh, and it’s, it’s mitigated by the fact that the, the credit of the people with those mortgages is the highest it’s ever been. Yeah. And the economy is performing pretty well. So if we were to have an unexpected economic downturn, if we were to hit a recession and it was severe, we would absolutely see those, those mortgage delinquencies and those defaults go up. But that doesn’t appear to be anywhere, at least on the, on the near term horizon. We are seeing delinquency rates go up in, in consumer credit. Credit card debt is at an all time high right now, almost $1.2 trillion. Auto loan debt is at an all time high. We saw a lot of subprime lending going on in the automotive industry during the pandemic and shortly afterwards when they were desperate to sell anything to anybody. So we’re seeing a little bit of, uh, of churn there. But the reality is, even though we’ve seen consumer delinquencies go up quarter over quarter now for I think six consecutive quarters, we’re still about 30% below where we were prior to the pandemic in terms of delinquency rates.

Dave:
Interesting.

Rick:
Bankruptcy filings the same thing. We’ve seen two consecutive years of growth after five years of declines, but we’re not back to 2019 levels for consumer bankruptcies either. So really what I do see is a gradual return to pre pandemic delinquency rates, pre pandemic financial distress. I think it’s gonna take longer than that in the foreclosure market. In fact, Adam data just released is in the process of releasing its 2024 foreclosure report and foreclosure starts were down, foreclosure completions were down, uh, on a year over year basis, which really none of us had in our bingo cards, uh, before the beginning of 2024. So I don’t think we get back to normal levels of foreclosure activity at, at least until 2026, if not later.

Dave:
All right. Well, Rick, thank you so much for joining us today. We really appreciate you sharing all your knowledge of the housing market and you’re very cool, unique investor sentiment survey. Love to have you back soon to see if you know some of the things you’re seeing in the sentiment survey shift or, uh, if people are gonna remain somewhat, uh, pessimistic throughout 2025. Thanks again, Rick.

Rick:
Thanks for having me,

Dave:
Man. Thank you all so much for joining us for this episode of On the Market. We’ll see you again soon for another episode in just a couple days.