Executive Summary
The US housing market is approaching a crisis of historic proportions. This analysis, based on extensive research and decades of mortgage industry experience, reveals how government intervention, demographic shifts, and speculative excess have created an unsustainable situation.
First-time homebuyers are now 40 years old on average — up from the late 20s in the 1980s. This dramatic shift signals a fundamental breakdown in housing affordability that government intervention has only delayed, not solved.
Unlike previous corrections, this crisis emerges from multiple converging forces: unsustainable demographics, government intervention limits reached, and a generation priced out of homeownership. The math is simple and inevitable: when the median household cannot afford the median home, correction must occur.
How We Got Here
The Perfect Storm: 50 Years in the Making
The Baseline: Home prices tracked household median income perfectly. Housing was shelter, not investment.
Women Enter Workforce: Dual-income households became standard. Home prices began rising as household buying power increased. Divorce rates increased, driving household formation—one couple becomes two households needing separate housing.
Securitization Begins: Banks started packaging mortgages and selling them as bonds. Housing transformed from shelter into an investment vehicle. A pattern emerged: after every economic crisis, lower interest rates and push "every Tom, Dick, and Harry" into housing to restart the economy.
The Financial Crisis: The crisis was fundamentally about loss of confidence in securitization and derivative markets. When Lehman Brothers' pledged assets were rejected, the entire market collapsed. Shadow markets (derivatives) are now MUCH LARGER than pre-2008.
Critical Shift: Basel 3 regulations restricted banks. Private lending pulled back. Government-sponsored agencies (Fannie Mae, Freddie Mac, FHA) absorbed what private markets wouldn't touch.
Pattern of Intervention
- Every economic crisis → Lower interest rates
- Federal Reserve buying mortgage-backed securities
- Government using housing to restart economy
- Each cycle requires more intervention than the last
Government-Backed Lending Explosion
A Crisis Hidden in Plain Sight
The Federal Housing Administration (FHA) was designed to help first-time homebuyers with low down payments. Today, it's become the new subprime.
Critical Comparison: Before the 2008 crisis, about 15% of the market was subprime (including FHA). Today, FHA alone represents 13-15% of the market with delinquency rates over 10%. We're already in worse territory than 2008, but the loans are government-backed so the risk sits with taxpayers.
Lending Standards Destroyed
In 2021, debt-to-income thresholds were quietly removed from qualified mortgage standards. Why? Because almost 1 million Fannie Mae and Freddie Mac loans didn't meet the existing standards. Rather than acknowledge the problem, the government changed the rules.
Current FHA Requirements:
- Down payment: 3.5% (vs traditional 20%)
- Credit score: As low as 580 with compensating factors
- Debt-to-income: Over 50% being approved
- Assessment: "Much worse than anything seen before 2008"
The Forbearance Time Bomb
Unprecedented Intervention Scale
COVID-era programs represented intervention "on a scale I've never seen." These weren't temporary emergency measures—they were designed to get through the 2024 election year.
Pre-COVID Modification Process
- Full underwriting required
- Income verification mandatory
- Extensive documentation needed
- Rigorous approval process
During COVID—Everything Changed
The New "Standards"
- Modifications sent in the mail
- Only 3 trial payments needed
- NO income verification required
- Automatic forbearance available
- Up to 18 months of non-payment allowed
The Partial Claim Loophole
In June 2023, the "Partial Claim Advanced Loan Modification" program launched:
How it works:
- Borrower doesn't pay for 3 months
- Gets partial claim (forbearance)
- Makes 3 payments
- Stops paying again
- Repeat with NO LIMITATION
Result: Payments added to back of loan as non-interest bearing liens, creating "second mortgages"—exactly the problem from the last crisis.
The current administration has now put guardrails on the FHA program, but the damage is done. Millions of loans are ticking time bombs, with homeowners who never should have qualified now facing payments they can't make.
Who's Buying and Why
Three Categories of Problematic Investors
1. The Airbnb Speculators
Using tools like AirDNA to project rental income, investors were pitched: "Why buy one? Buy 10!"
Case Study: Kyle, Texas (20 miles from Austin)
- Tool predicted: $600/day rentals 55% of the year
- Reality: Only booked during South by Southwest
- Competition: 15,000+ short-term rentals in Austin area
- Problem: Past performance ≠ future returns, especially when everyone uses the same data
2. Builder Self-Dealing
Builders building properties, "flipping" them to themselves, then selling to GSEs (Fannie/Freddie). The government-sponsored enterprises end up holding the risk.
3. Mom & Pop Fraud
Using FHA loans claiming primary residence occupancy while actually renting the properties. Veterans using VA benefits for "primary residences" that are actually investment properties.
Widespread Fraud: Veterans using benefits to buy multiple short-term rental properties by claiming each as primary residence. This pattern exists across all programs.
The Supply Myth
Not a Shortage—A Mismatch
The mainstream narrative claims housing shortage is driving prices. The data tells a different story.
Demographics Are Destiny
The numbers don't lie, and they can't be changed:
The Inevitable Math
- Not having babies at replacement rate
- 6 million Boomers dying 2025-2035 (own majority of homes)
- 26 million more Boomers dying 2035-2050
- Most population growth last year: immigration (now slowing)
- Average household size approaching "one house per person" (unsustainable)
COVID pulled demand forward. Millennials bought earlier than they normally would, often using their parents' PPP money, ERC money, or EIDL loans. That demand is now exhausted, and the next generation can't afford to buy.
Where People Are Leaving
Major Population Losses:
- LA County: Lost 330,000+ people since 2020
- New York City: Empty compared to early 2000s
- San Francisco: Continued exodus
These aren't just people moving—they represent collapsing tax bases and the inability of cities to support high housing prices.
Regional Breakdown
Florida & Texas: Drastically Overbuilt
Both states show clear signs of overbuilding with high visible delinquency. The "regional" excuse (same as 2008) doesn't hold when problems appear nationwide.
California: Housing Mismatch
- LA County: 330,000+ people left, creating housing mismatch (not shortage)
- Many mom & pop investors holding properties
- Lower owner-occupancy than national average
- San Diego: Year-over-year price declines despite Department of Defense presence
Midwest: Later But Coming
Will take longest to correct along with Northeast. After 2022 rate rises, investors were told "buy in Midwest" (cheap, can still cash flow).
Indianapolis in serious trouble: Inventory now growing again. Later correction due to: (1) More investor activity after 2022, (2) Negative demographics
Northeast: Lost the Plot
New York City: Empty compared to early 2000s
2019 Rent Control Law Backfire:
- Can only raise rent by certain percentage
- ~100,000 apartments sitting empty
- Landlords can't afford repairs to meet code
- Waiting for law to change
- Assessment: "Lost the plot" - think they're immune
Why Top 10% Can't Save the Market
The Wealth Paradox
The top 10% of earners represent 50% of consumption. This sounds like they could prop up the housing market—but they can't.
Even wealthy buyers need someone to rent their investment properties to. When the middle and lower classes can't afford the rents needed to cover costs, luxury properties sit vacant nationwide.
Built for luxury in 2021 thinking everyone was getting rich. Now: $1.3 billion in spec homes* sitting unsold.
No Options Left to Intervene
1. Institutional Investors Can't Save It
- Institutional investors are net selling (not buying)
- Can't make money in this market
- Blackstone can't get cheap funds anymore
- Insurance and taxes too high to cash flow
- Can't save the market even if they wanted to
2. Demographics Can't Be Changed
- Can't change the birth rate overnight
- Can't stop boomer deaths
- Immigration slowing down (was most of population growth)
- "Unless robots need houses" - no demand replacement
3. Political Pressure Mounting
Younger generations are angry enough. "Pitchforks will come out" if the government gives homes away to investors or bails out speculators. Politicians are backed into a corner on what's possible.
4. Government Tools Exhausted
- Can't keep giving forbearance (guardrails now in place)
- Can't print more money without raising prices more
- FHA already at crisis levels
- Cities and states bankrupt
What They Might Try
Likely next steps (none of which solve the problem):
- Government buying homes from builders/institutional investors
- Partner on "affordable programs" (already passed in BBB)
- Create lending facilities (like SVB's BTFP) - "mark at 100% when really 25%"
- Further accounting tricks to hide losses
The Coming Foreclosure Crisis
Current Reality
Conference Report (3 weeks ago): "All they talked about was short sales" (asking bank to accept less than owed). These have "exploded overnight" according to industry insiders.
The Doom Loop
Only takes ONE foreclosure in a neighborhood to impact all comparable sales:
Hypothetical Example: The $750k Neighborhood
- All homes valued at $750k (everyone feels wealthy)
- One distressed sale at $450k
- All homes now worth $450k (new comp)
- Late buyers now underwater (owe $700k on $450k house)
- Wealth simply disappears (seller already got paid and left)
- Underwater → can't refinance → can't sell → first financial stress → foreclosure
- Creates cascade: more underwater → more defaults → more sales → lower prices
It's not just strategic default. When you're underwater, you have ZERO flexibility:
- Need to move for a job? Can't sell (would owe money at closing)
- Want to refinance to lower rate? Can't (underwater)
- Hit financial trouble? Can't modify (already underwater)
- ANY financial stress → foreclosure is the only option
Credit Restricting Across System
The trap is tightening:
- Can't refinance (underwater or don't qualify)
- Can't get loan modification (too underwater)
- Can't sell (underwater)
- Result: FORECLOSURE is the only exit
"The Big Orange"
Why Mortgage Debt Matters Most
- Mortgage debt is BY FAR the largest household debt
- Student loans and auto loans much smaller in comparison
- Called "the big orange" in Federal Reserve charts
- "When the big orange gets in trouble, we're all in trouble"
Cities and States Face Bankruptcy
How Cities Miscalculated
The American Rescue Act provided approximately $350 billion to cities and states for COVID relief. Cities thought they were "getting rich forever."
Their Assumptions (All Wrong):
- Continued population growth (Nashville: claimed "100 people moving here every day"—NEVER TRUE)
- Home prices continuing to rise (increasing property tax base)
- Federal windfall would last or be repeated
What They Did: Spent "like drunken sailors" on hiring, projects, and long-term commitments.
Current Reality
Cities are bankrupt:
- Budget deficits across the country
- Chicago bonds kicked out of municipal funds
- Property tax base collapsing (can't raise taxes enough)
- "There's going to be a limit to what they can do"
Population reversals mean revenue assumptions are broken. Temporary federal money created permanent spending commitments. The math doesn't work.
Advice for Young People
Financial Principles for the Crisis Ahead
1. Say NO to Debt
- No "buy now, pay later"
- No unnecessary credit cards
- "Say no to debt slavery"
- Every dollar of debt is a claim on your future labor
2. Don't Assume Income Will Always Rise
Reality Check: "I work hard, I'm capable" ≠ job security. At a certain age, you become a liability to companies. You're first out the door regardless of productivity. White collar layoffs are accelerating.
3. Build Skills Continuously
- Keep learning new skills
- Develop ability to pivot quickly
- Don't rely on credentials alone
- Make yourself adaptable
4. Save Money Aggressively
Where to Keep Cash
- Short-term US Treasuries
- Money market accounts
- High-yield savings accounts
- Build substantial cash reserves (6-12 months minimum)
5. Get Real Financial Education
- Follow credible sources (not influencers trying to make money off you)
- Understand the actual mechanics of markets
- Learn to read financial statements
- Question mainstream narratives
Housing Specific Advice
WAIT. The affordability crisis MUST resolve. Those who gambled on housing will lose money. Prices WILL come down. "Absolutely" will become affordable again.
"The good news is you'll be able to afford shelter and pass it to your children. Housing returns to being shelter, not a get-rich scheme." — The Silver Lining
Mainstream Narrative Breakdown
Why You Can't Trust Official Numbers
Numbers reported by mainstream sources are modeled, not actual results. NAR (National Association of Realtors) data particularly questionable.
Statistical Impossibility: Median list price reported as "exactly the same as year ago"—this is statistically impossible in a market of millions of homes with continuous trading.
What People Actually See vs. What's Reported
On-the-Ground Reality
- For sale signs everywhere (especially Texas/Florida)
- Zillow showing: price cut, price cut, price cut
- Endless emails about price reductions
- Short sales exploding
Failed Marketing Slogans
- "Survive till 25" (said in 2024, didn't happen)
- "Marry the house, date the rate" (rates didn't fall)
- All premised on rates falling—they haven't
Mortgage rates don't follow the Federal Reserve's rate cuts. They follow the US 10-year Treasury bond, which reflects the bond market's view of US creditworthiness and inflation expectations. The 10-year remains stubborn because the world requires higher rates to lend to the US.
Similar Issues Across All Debt Markets
The housing crisis isn't isolated—it's part of a broader debt crisis affecting multiple sectors:
Commercial Real Estate: "Extend and Pretend"
Banks are adjusting internal covenants (their own risk management rules) to avoid calling loans in default. Example: Instead of requiring action when property value drops 20% below loan amount, they change internal rule to 40%.
This lets them keep loans marked as "performing" on their books even though by normal standards they should be in default. It's "extend and pretend" everywhere.
Job Losses Accelerating
White collar workers getting "decimated" with continuing layoff announcements. Opinion: "Nothing to do with AI"—companies cutting regardless of performance.
What's Coming and When
The Predicted Timeline
Building Phase: Foreclosures increasing in all 85 tracked cities. Short sales "exploded overnight." Credit restriction accelerating across the system.
Material Crisis: Predicted arrival of material foreclosure population. Forbearance programs fully exhausted. Government guardrails preventing further extension of loans.
Long Correction: Demographics take decades to change. Boomer deaths will continue releasing housing supply through 2050. Market needs to find sustainable equilibrium between prices and median household income.
Changed Life 3 Years Ago: Melody Wright saw this coming and completely changed her life to prepare. "It was just math. When the median household can't afford the median home, eventual correction must occur."
Additional Warning Signs
- Tourism down significantly (revenge travel over)
- Las Vegas "getting pummeled" (would "terrify you" to see the data)
- Can't all go on vacation indefinitely (COVID-era spending exhausted)
- Reality becoming visible despite data manipulation
The Inevitable Correction
"It was just math." — Melody Wright on why this is inevitable
Why This Time Really Is Different
Factors Making This Correction Unique
- Demographics: Can't be changed. Math is inexorable.
- Government capacity: Already at intervention limits. Political constraints prevent further bailouts.
- No buyer of last resort: Institutional investors can't make money. Top 10% can't absorb supply.
- Debt levels: Households, cities, and federal government all overleveraged.
- Awareness: Younger generations see the scam, won't participate at current prices.
The Path Forward
Markets always eventually find equilibrium. The question isn't if prices will correct—it's when and how severe.
What correction looks like:
- Housing returns to being shelter, not investment
- Prices fall to levels where median household can afford median home
- Speculation and excess investor activity washed out
- Some pain in transition, but healthier market long-term
- Homeownership becomes achievable for young people again
After the correction, housing becomes affordable again. You can buy shelter and pass it to your children. The market returns to sanity. This is ultimately good news—painful in the short term, but necessary and beneficial long-term.
Resources for Further Research
- Melody Wright's Substack: Free version contains full arguments and ongoing analysis
- "The Big Short" (film): Essential for understanding securitization mechanics
- Track local foreclosure data: Your area may show trends before national data reflects reality
- Follow actual data, not narratives: Official statistics increasingly disconnected from on-the-ground reality
This analysis represents one expert's view based on extensive data and decades of industry experience. While the structural problems are real and well-documented, timing predictions are inherently uncertain. Make your own financial decisions based on your circumstances, risk tolerance, and due diligence.
What's certain: The median household cannot afford the median home. This is mathematically unsustainable and must correct. Everything else is about timing and severity.