Melody Wright’s Honest Take On the “Worse Than 2008” Crash Claim

0:00We've talked a lot on the show about corrections, slowdowns, and what a softer market means for investors. Today's conversation is a little different. My guest, Melody Wright, has been widely quoted as saying we could be headed for a crash worse than 2008. I was pretty shocked, to be honest, by the claims that I heard from Melody, and I invited her on the show for a debate. But as you'll hear in our conversation, her opinions about housing may not have been so accurately reported by the mainstream media. So what does she actually believe? And what is the real thesis behind her view of the housing market?

0:41Welcome to On the Market. I'm Dave Meyer, and I'm joined by Melody to clear the air, lay out her outlook in her own words, and walk through the mechanics of what she thinks happens next. We'll dig into how the labor market and inventory are shaping housing across the country, what evidence points towards a larger scale correction, and we'll dig into some risks in the private credit market. And of course, we'll talk about what investors should be watching for as we head through the rest of 2026. This is On the Market. Let's get into it. Melody, welcome to On the Market. Thanks for being here.

1:16Melody Wright:Thank you so much for having me. It's my pleasure. Maybe you could start by just introducing yourself and letting us know a little bit about how you're involved in the housing market. Sure. Yeah. So I fell into mortgage in 2006 by accident because that's how everybody gets into mortgage. You don't grow up and say, oh, I want to work for an industry that's called death pledge. So basically, I started at one of the top subprime lenders in September of 2006 having no idea what I was getting myself into. And very quickly, because we were part of a big transaction with a private equity firm, they were seeing the signs and they wanted a purchase price adjustment.

1:57Melody Wright:So we basically led the write down. So I was at a top five originator and servicer and rode throughout the great financial crisis, which was just a total, total dumpster fire. But yeah, and we had started out as a subprime lender, but really our biggest book was agency. So it was more prime than subprime, but that little problem caused more and more problems as time went on. And so I wrote all that through after that, like my company finally went into bankruptcy in 2012. Oh, wow. It took us that long. I'm sorry to hear that. Oh, no. I mean, you know, it had to happen. But after that, I went to kind of like fintech companies trying to help implement some of the Dodd-Frank as well as help the industry get technology.

2:46Melody Wright:Because believe it or not, if you walked into Wells Fargo today or any of the large servicers, you would see black and blue screens, black and green screens. I do believe that. I mean, it's crazy. And nobody remembers the code. And so that kept me very, very busy. But when I was at one of those fintech companies, my CEO said, you've got to tell me when rates are going to rise. Because, you know, everything was just pumping 100 miles per hour, but we all knew it was going to slow down at some point. And so I kind of jumped into macro. And then from there, I started realizing a lot of people weren't putting the whole story together.

3:24Melody Wright:So I wrote an article in January of 23 in Housing Wire, which I'm sure this is something we'll talk about, but, you know, debunking the inventory myth. And then I went out on the road. I just, I just, I went out on the road, drove all across the country, looking at these markets, you know, and I'm looking at them from a macro and micro perspective. So I track 85 markets. I look at inventory every week in those markets. And then I just kind of, I started my sub stock in the spring of 2023. And so, and that's how I got here. That's short version anyway. Well, I'm really eager to hear about your takes on the housing market.

4:04I think we're probably going to disagree on some things, but I am looking forward to hearing your opinions about these things. So maybe you could just start by telling us big picture. Like, what do you see nationally in the housing market right now? And where do you think we're heading over the next few years? Yeah.

4:20Melody Wright:So right now we're entering year four of frozen tundra. I mean, it's just, it is, it is just so, it's actually mind boggling when you think about it, that we could have, you know, the lowest sales since 1995 yet have increased population by 20 % since then. Like, I don't know that anybody thought we could have this low of transactions for this long. And so well, you have your affordability problem. People can't afford mortgages. You know, FHA was a way that a lot of people were getting in in 21, 22, 23 with those low down payments. And half the time they were using some down payment assistance program from the American Rescue Plan money.

5:01Melody Wright:And so you got a lot of people in that way, but that's kind of run out, especially with student loans now reporting to credit. You're seeing a much tighter credit, not necessarily the lenders are tiny. It's just, oh, you had a 750 yesterday. Today, you have a 550. That's just not going to work out, which is why the Fed reported, you know, some of the highest, well, the highest mortgage refinance rejection rate in their last SCE report, over 43%, which is, that's a little insane. Yeah. And it's over 20 % for purchases. So you have the affordability problem. And then you also have the boomers who own most of the real estate.

5:42Melody Wright:And they also spend a lot of time on mainstream media. And they still believe that their house, despite those repairs, they never did. And maybe it's their second, third house is going to sell for even more than there's estimate. And so I think what you're seeing right now with the cancellations is yes, some of it's credit, but I think a lot of it's like you get to that final closing table, well, you have the property inspection. You're like, no. I mean, and the seller's just refusing to come down, you know. And so we call it rage delisting, which is what we've seen across all these markets is people just delisted like crazy, which is why what I just saw in February was kind of wild.

6:26Melody Wright:You probably know, you know, inventory bottoms in February, typically. What we saw after the crypto route and after kind of the wobbliness in the stock market, listings were just are flying onto market. Like, I mean, and, and way more than what you would typically see seasonally. And I'm seeing some data providers not talk about this. And so I don't know if that's the timing of their data, but Realtor did come out with a, an article about a week ago, just saying they'd seen a boom in listings, but I've seen it in my 85 markets. And how are you tracking those new listings? Because I did see that realtor article.

7:05I think they said it was like new listings are up 8 % year over year or something like that. I think Redfin has it about flat, but are you seeing a bigger increase than that?

7:15Melody Wright:So year over year, that's about what I saw, like 8%. Yeah. Which it's not even that year over year number. It's how quickly they came to market in a matter of two weeks. That was what's so shocking to me. So someone like, I mean, like California was up like 15 % month over month, you know? And so it was like, yeah, everybody was pulling, pulling listings. And then somewhere, someone got a memo now in California that was probably related to some layoffs because you're seeing a lot of that in San Jose and they had some eBay, Western digital layoffs. So I track all listings. You know, a lot of people will exclude pending.

7:51Melody Wright:I just, I don't. And so I look at it all because new, I saw back in the day when Altos only focused on new listings, they missed what was happening. And so they were missing the buildup. And so I just focus on everything. Okay. And so when you look at this inventory data that you're collecting and looking at and some of the broader trends, it sounds like you think we're heading for like a full-blown crash. Is that right? So that's what everybody focuses on. I mean, but the timing of that would take a long time because what I'm really focused on the more long term picture and our current demographics.

8:33Melody Wright:And we have a problem that a lot of the inventory is underreported. This is what I found when I went on the road and I was trying to match permits to what I was seeing in front of my face. But in places like Texas, you don't have to file a permit in an unincorporated area. And a lot of these areas were not incorporated. And so I think probably if you're just looking at Zonda, for instance, or new home source, we're probably missing 25 % of the new inventory. And so here's the thing, too. We're in a data dungeon. We haven't had really new home sales for months. And when they publish the data, what they're doing is putting placeholders in and then revising it.

9:14Melody Wright:So we're really lagged in what we're seeing there. But before kind of the data suspension, you know, they hit below$400 ,000 on their median sales price, which is nuts. It just is keeping the trend of that new home price being lower than the existing home price. And so I know everybody focuses on, yes, do I see a crash? I see a correction. I do not see a crash. And I fully believe that until we address affordability, meaning wages have to rise, you know, that that that historical relationship that got really started getting messed up back in the 90s is going to go back because of the demographic situation and the silver tsunami.

10:00Melody Wright:me. And the other thing I think many people miss is, you know, how much speculation occurred, how much speculation occurred outside of the MLS. I mean, I think that's also one of our problems right now is that I think that the private market is a lot bigger. I go to a conference in Nashville for private note buyers, and that is much bigger than I think anybody realizes. The mortgage industry is just starting to see it like you know the pace uh is morby sub twos they're starting to see that and so yeah i think we're missing a lot of information but in the short term you know this year we've got the fha guardrails went on in october and that is why you're seeing serious delinquency rise they have a little bit more time um with a forbearance short-term forbearance.

10:50Melody Wright:We could potentially skate through this whole year again. I mean, it's just we need some sort of sentiment trigger because a lot of the boomers are not in a hurry. But now what I'm seeing in my markets, you know, the number of deceased borrowers is increasing at alarming rates, especially in the Northeast, because I use a tool called Property Radar. And you look at such low owner occupancy in these markets, especially these coastal markets, and who owns those? And they won't be owning them forever. And Charles Schwab did a study and said 70 % of inherited properties get sold. And so I just think the industry is not taking all of this into consideration.

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14:05Welcome back to On the Market. Let's get back to our conversation with Melody Wright. So you think prices are going to come down, but over time, it's not like an event that's going to happen this year. But I've seen some, you've, I think, said in the past that you think prices could come down as much as 50 % or be equal to the median income in the US. Do you still think that's true?

14:28Melody Wright:I didn't say equal to the median income. I saw that in Newsweek, but I don't want to misquote you so yeah newsweek misquoted me they misquoted me twice i had to send a correction i'm sorry it was very frustrating um because then you unusual wells tweets it out and eight million people say so no what i said was uh that we could see in some markets corrections as much as 50 that could take some time to do not in a year that was for their headline and i also said when i said match, I meant that historical relationship. And then some dude put up on Instagram that I, that it was going to equal, but I didn't say any of those things.

15:11Melody Wright:If you watched the original interview. Okay. No, yeah. Let's, let's clear the air there and say what you think. So you basically saying you think we need to get back towards a historical relationship between income and home prices, not that they need to match one to one. I see. Okay. Yeah. I've heard that argument too. I hope you're right about that. I would love, you know, people measure it very differently, the income to price ratio. Some people say it's seven, some people say it's five, but we are definitely at an elevated rate. It's, you know, I, the, the one I was looking at yesterday shows us at about seven, seven times your income for the average home price.

15:56And the historical relationship is more somewhere around five. So we are definitely in a distorted era. But if you look at other countries, if you look at Canada or New Zealand or Australia, they just keep going up and up. And I hope that does not happen. But I am with you on the affordability front. I think affordability needs to come down. Yeah, I guess we are more in agreement than I was anticipating because I think it's just going to take some time. I think personally, I think prices might stay somewhat stagnant for a very long time. I do think they're coming down this year. But when I say somewhat stagnant, I mean single digit declines, not double digit declines.

16:36While hopefully wages rise and rates start to come down and that gets us back to affordability. but I don't yet see the evidence that we're going to see this like race to the bottom. So I'm curious, you had mentioned we need like a sentiment trigger or something. And I think we see that a lot of the economy, right? It seems like stock market's kind of on edge and you just don't know what might tip it over. So I'm curious if you have any thoughts on like what might bring about the start of this sort of decline that you're anticipating.

17:09Melody Wright:I think that it's starting, When Zillow put out that article and said 53 % of homes have had price cuts and that average is 9%, that was, I think, mid-summer, late-summer. So I think it's been building and building and building, but a credit crisis is what I actually think. But I'm not the kind of person that says, I'm not here because I have 2008 PTSD, which I think some influencers like to say about me. That's not why I'm here. I actually believe this couldn't happen again because I spent many years of my life trying to make sure it didn't. But our demographics are the big, you know, issues.

17:47Melody Wright:So I honestly think, like I just kind of said to you, is we might skate through this year again. I mean, with probably a modest decline, which may be what you're calling for. Yeah. But I think this credit crisis that we're seeing brewing and private credit, what Chase just did is not. And it's so much bigger than what people realize yet because they're restricting access to further borrowing. And so what will happen a lot of times when you have one of these big warehouse lines, you have that collateral pledge. At any moment, they can turn around and say, Dio, we're writing this down. So let's say that you were at what you were supposed to pledge today at 100 and you've got fully levered.

18:27Melody Wright:when they write that down, you now have to NT up more collateral. At the same time, to do that, you have to mark those assets down. And so this process, it's a quiet little article. I know it may seem like it's loud, but actually they aren't explaining the degree that this is problematic because once you cut off funding, that's what happened last time. We had a collateral shortage, funding was cut off. And so the confidence game was up and that created liquidity shortage across the system. Can you explain to everyone what this is, just like private credit and how it is related in real estate? Because you hear about it in private equity and funding midsize companies and some of these hedge funds and private equity companies sort of filling the gap that Dodd-Frank kind of took away from the banks.

19:19But like, how is it related to real estate?

19:22Melody Wright:So it's important to kind of understand what happened, you know, with Basel III, you know, in-game announced and the banks really pulled back from lending because they were risk-weighting certain assets a lot higher than others. And so you can actually see sort of the transition. And this is another reason why we don't have all the data, the transition for the banks to the non-banks. The non-banks, be it your Rocket, your UW, Mr. Cooper, Freedom, they are doing all of the origination. These are private non-banks. They don't have deposits. I mean, so basically what happens when the banks pull back, then you had these private actors get in to do the lending.

20:03Melody Wright:Now, the banks are exposed just like because who Who is lending to these private credit companies? But so what you have was a whole bunch of people. Right. Sorry, can I just, I just want to clarify what you're saying is banks are not either not allowed to or for strategic reasons aren't making these loans, but they invest in the private companies that make these loans. I just want to make that clear because it is all super interconnected. Yeah, they're lending to them. And it is so confusing, right? But what these private credit folks did is they, again, thought they were the smartest guys in the room.

20:38Melody Wright:They don't understand credit. And they thought they could just go off the credit score for a lot of this origination. So what did they do? There's all kinds of Best Egg is a Barclays company out there. You know, there's all kinds of companies out there giving short-term loans or giving, you know, secure personal loans. that are being backed by these business development companies is what they're called or bdcs and that's considered private credit because they're not a bank they're not federally insured and they don't take deposits which is what you need when you get into time stress because of what jamie diamond just did now they if they don't have cash they're going to be in a lot of trouble and it's just going to start eating in that cash eating in that cash so i've talked to some actors in this space that did the kind of DSCR lending, things like that.

21:25Melody Wright:And they're terrified because they were using majority credit scores. And unfortunately, they didn't realize that evictions weren't being reported. You had the mortgage forbearance. You had student loans just stop reporting. And so when that reporting started, everybody woke up to a very different credit picture, especially for our younger generations. And the issue, too, is you've got to think about, like, Klarna, our firm has a loan from Blue Owl. Only one of those is reporting to credit. Most are not. And this is what I'm hearing. And so when the Fed does its debt and household schedule, where do they get that information?

22:08Melody Wright:They get it from Experian. Also, this is something nobody knows, I don't think, is that the payment deferrals, which were the workouts for the Fannie and Freddie loans, those aren't recorded on public record. And just as we were talking about at the beginning of the show, those systems are so old. If you ever see a credit reporting file, you'd probably want to go jump off a building. Like, it's so crazy. And so the, like, smaller servicers can't get it right. Sometimes they don't get it right for other reasons. But I don't believe that those loan-to-values are being properly reported. And I reached out to Quirt Logic, Quotality, and I was like, how are you accounting?

22:48Melody Wright:because they do the mortgage equity withdrawal study that every newspaper uses. Yeah. And they get their information from public records. That's why we can trust Case Schiller more than we can. You know, NAR last time had to re-report three years of price history and sales history. But we can trust Case Schiller because they're pulling from recorded record. And I said, so how are you taking that into consideration? Of course, I got no response. Interesting. They're not. So you think that would imply that the total homeowner equity is overreported? Is that what you mean? Oh, yes. Because of forbearance.

23:25People were basically deferring their principal pay down for whatever it is, a certain amount of time. I think that is probably true that it is being overreported, but it's still super high. I think that's the thing that kind of makes me feel better about total homeowner equity, at least, because even, you know, I was kind of doing the math the other day, I was thinking about this. And it's like maybe a trillion dollars of overreporting, which sounds like a lot, but total homeowner equity is reported right now, like 35 trillion. So it makes a difference, but not crazy. But I want to go back to the DSCR thing, because I think that's relevant to our audience.

24:06So you're saying like, you're basically saying that a lot of these private lenders, which could be everything from DSCR to even people who are, I would assume, buying notes or whatever they're doing, they are recognizing that there is more risk in their portfolio than they originally did. Do you know or have any insights on our delinquencies up in that space? Because I think that that's the thing that I keep coming back to about like a crash is that I think delinquencies are like the real canary in the coal mine. I don't disagree with you about demographic stuff. I actually did a whole show about it last week about demographics.