Key Takeaways

Gerli sees a divided housing market. He describes falling prices and growing inventory in several Sun Belt markets, while limited supply supports parts of the Northeast and Midwest. A national average can hide both experiences.

He believes home prices are the bigger affordability problem. Lower rates would help, but he argues that modest changes in borrowing costs cannot fully offset elevated prices. Builders offering subsidized mortgages provide an important test of that argument.

Cheaper homes may not immediately revive demand. Gerli says Austin's decline has not brought a strong recovery in sales. Buyers who spent years priced out may remain reluctant even after discounts appear.

The seller's circumstances matter. Wealthier owners with low mortgage rates can often wait. Gerli finds more pressure to negotiate among some recent buyers carrying higher financing costs.

He sees a sharper financing squeeze in apartments. Refinancing at higher rates while rents fall can weaken landlords' ability to cover debt payments. He expects further distress to create opportunities, although he is not calling a market bottom.

He does not expect a repeat of the full 2008 banking crisis. Gerli points to stronger mortgage quality and more homeowner equity, while warning that local property values can still fall substantially.

Key Moments

00:00:40 - Why Gerli calls this a housing recession Weak transactions and affordability form the starting point for his analysis.

00:03:06 - Why New Jersey looks different from Nashville Local construction and available inventory help explain the regional split.

00:07:14 - Why he sees a Sun Belt reset Migration can slow sharply without becoming an exodus, and lower prices may eventually restore appeal.

00:09:17 - How aging baby boomers could add supply Gerli frames demographics as a pressure over the next five to ten years.

00:15:13 - Why lower mortgage rates may not be enough Builder incentives offer a test of whether cheaper financing alone can bring buyers back.

00:23:37 - Why some sellers can wait and others cannot Income, accumulated wealth and mortgage rates influence listings and negotiation.

00:27:05 - Where apartment refinancing creates risk Higher debt costs can arrive alongside weaker rental income.

00:30:33 - How this differs from 2008 Gerli separates local price declines and apartment stress from a broader banking crisis.

Are Home Prices Dropping? Nick Gerli Explains the Divide

As of October 2026, home prices are falling in some Sun Belt markets while supply-constrained areas remain stronger, according to Nick Gerli. A housing recession is a prolonged slowdown in sales and demand. Gerli's central point: lower prices and mortgage rates may still take time to bring buyers back.

In this conversation with Maggie Lake, the Reventure App founder explains how local inventory, migration and an owner's mortgage rate can shape the same market very differently. Watch the full interview for his discussion of affordability, apartment debt and the limits of comparisons with 2008.

Where are home prices dropping, according to Gerli?

Gerli identifies parts of Florida, Texas, Tennessee, Arizona and Colorado as markets where prices are falling. He contrasts those conditions with tighter areas of the Northeast and Midwest, where limited inventory continues to support prices.

He puts Austin's decline at 27% over four years. That is his estimate for a particular market and period, rather than a national measure or a prediction for every property.

Lake offers a useful challenge from her own neighborhood: in New Jersey, buyers still struggle to find homes. Gerli agrees. He points to limited construction and owners who tend to stay longer, compared with Nashville's building activity and faster turnover.

Even within one city, he sees substantial differences. Higher-income neighborhoods have generally proved more resilient in his analysis, while areas with more investor ownership and financially stretched households have faced greater selling pressure.

Why is the Sun Belt cooling if people still want to move there?

Gerli argues that migration has slowed enough to change the balance between buyers and available homes. Some Sun Belt markets still attract new residents; his argument does not depend on everyone leaving.

During the pandemic, strong migration helped sustain rapid price increases. In his view, some markets then became too expensive for local households, while the inflow of buyers weakened. Construction and resale listings now meet less demand than sellers had expected.

He views this as a cycle. Lower prices could eventually make those markets attractive again, and he remains positive about the Sun Belt's longer-term appeal.

Baby boomers add a separate, slower influence. Gerli says many older owners have enough assets or little enough mortgage debt to resist selling under pressure. His concern is the additional supply that could emerge as they age out of homes over the next five to ten years.

Why are home prices still too high for many buyers?

Gerli believes the combination of purchase prices, financing costs, taxes and insurance leaves many households unable or unwilling to buy. A price decline from an unusually high peak does not automatically make a home affordable.

He cites a typical monthly mortgage payment, including taxes and insurance, of about $2,850 and household income of roughly $87,000 a year. Using those figures, housing payments would consume about 39% of gross income, before other household expenses. These are his illustrative figures, not a calculation for every buyer.

He also sees a choice among households that can qualify: some find renting a comparable home substantially cheaper. Maintenance responsibilities and lifestyle preferences can reinforce that decision, particularly among younger buyers.

The resulting weakness includes people who cannot qualify, people who prefer renting and people who simply reject the asking price. Each group may need a different reason to return.

Will lower mortgage rates bring buyers back?

Lower rates would help, Gerli says, but he doubts that modest reductions alone would produce a strong recovery. His view is that "prices matter way more than rates."

He points to large builders offering mortgage-rate buydowns, incentives that reduce a buyer's borrowing rate. Those offers can make financing cheaper than on a comparable resale home, yet he says demand remains underwhelming even alongside price cuts.

Gerli suggests that mortgage rates around 5%, combined with a further 20% price decline, could generate a much stronger response. That is a hypothetical combination he thinks would improve demand, rather than a forecast that either change will occur.

Nor does he expect an instant response to cheaper homes. Austin is his example of a market where substantial price declines have not yet produced a strong recovery in transactions. He believes years of unsuccessful house hunting have left some buyers disengaged.

For another housing analyst's assessment of affordability and builder incentives, see Ivy Zelman's discussion of the housing shortage debate.

Why does a seller's mortgage rate matter?

A low mortgage rate can give an owner more reason and more ability to stay, according to Gerli. A recent buyer with higher financing costs may face a different monthly burden and a different willingness to negotiate.

He finds that weaker demand alone does not explain the gap between higher- and lower-income neighborhoods. In his analysis, listings have also grown more slowly in wealthier areas, where owners may have financial assets and inexpensive mortgages.

His own recent purchase illustrates the importance of an individual seller's circumstances. Gerli says he bought a home in an area he already knew after a seller accepted a substantial reduction from its previous purchase price. He presents that as a specific opportunity, while expecting more discounts ahead.

Wealthion's archive also includes Gerli's earlier discussion of falling sales and rising listings. That older interview provides historical context for his thesis.

Where does Gerli see the greatest pressure on real estate investors?

Gerli sees a particularly difficult combination in multifamily housing: loans coming due at higher interest rates while rents weaken in some markets. Apartment owners can face rising financing costs and less rental income at the same time.

He describes landlords refinancing debt originally priced around 3.5% at roughly 6% to 6.5%. For properties bought using optimistic rent-growth assumptions, that change can undermine the ability to cover debt payments. He reports growing distress and discounted properties, while expecting further pressure.

For single-family investors, he also questions whether rental yields adequately compensate for financing costs, maintenance and management. He raises forthcoming restrictions on large institutional buyers as another influence on demand; those restrictions have exceptions and should not be interpreted as an immediate ban on every corporate purchase.

For the broader debate about interest rates and portfolio risk, see Andrew Sarna on the Fed and the 60/40 portfolio.

Could this become another 2008 housing crisis?

Gerli sees similarities in valuations and weak demand, but he does not expect the same banking fallout. He argues that single-family mortgage quality is better, homeowners have more equity and banks are less exposed than during the earlier crisis.

He still expects significant losses in some oversupplied markets. His distinction is that property values can fall without mortgage foreclosures reaching the extremes of the financial crisis.

What could make the outlook less negative?

Improving affordability, a recovery in local demand or an earlier adjustment by builders could make Gerli's cautious outlook too pessimistic. He acknowledges that the Sun Belt retains attractions and that some builders have already made substantial concessions.

The interview's closing discussion considers whether heavily discounted builder pricing could signal an earlier recovery for those businesses. Gerli sees that logic, although he personally expects more pain over the next year or two.

There is also a difference in emphasis with Zelman's August interview: she described depressed but improving multifamily transactions and the potential for better rent growth around 2027. Gerli's October discussion places more weight on refinancing distress. Those are different assessments made at different times, and neither establishes a precise turning point.

What Investors Should Watch

• Local inventory alongside completed sales. Gerli's regional thesis depends on how available homes compare with actual buyer demand, including differences between neighborhoods.
• The full cost of owning versus renting. Mortgage rates matter alongside prices, insurance, property taxes and upkeep. Builder incentives can change that comparison.
• Migration and listings from older owners. Gerli separates a cyclical slowdown in incoming residents from the longer demographic increase in homes coming to market.
• Apartment rents, refinancing terms and delinquencies. His multifamily concern is the combination of weaker income and more expensive debt. Employment deterioration could add pressure.
• Builder prices and order trends. Lower effective prices may indicate progress toward affordability, but Gerli wants evidence that buyers are responding.

FAQ

Are home prices dropping across the entire US? Gerli describes a regional split. He sees declines in several Sun Belt markets, while limited inventory supports prices in parts of the Northeast and Midwest. His analysis does not imply that every city, neighborhood or property is falling.

What is a housing recession? A housing recession is a sustained slowdown in housing activity, including sales and buyer demand. Gerli uses the term to describe weak transactions even though prices have not fallen uniformly nationwide.

Is it cheaper to rent or buy? Gerli says renting a comparable home can be substantially cheaper in some markets. The answer depends on local prices and rents, financing terms, taxes, insurance, maintenance and how long a household expects to stay.

Does Gerli think lower mortgage rates will fix affordability? He expects lower rates to help but argues that meaningful price adjustments may also be needed. His example of roughly 5% rates alongside a 20% price decline is a hypothetical scenario, not a prediction.

Does Gerli expect another 2008 banking crisis? He does not expect the same banking fallout. He cites better mortgage quality and more homeowner equity, while still warning of local price declines and stress in multifamily properties.

Which expert and interview does this article reference? This article draws on Nick Gerli's conversation with Maggie Lake, published by Wealthion on October 14, 2026, titled Housing Market in Crisis: Nick Gerli Warns the Worst Is Yet to Come. Gerli is the founder and CEO of Reventure App. The full video is embedded above.

How much of your portfolio depends on property values, rental income or borrowing costs? You can request a complimentary, no-obligation portfolio review to discuss how these risks relate to your investments.

Full Transcript

Nick Gerli: Housing is now in a multiyear recession. Austin's the biggest housing bust in the US right now. I think we're going to see even bigger discounts over the next year.

Maggie Lake: Hey, Nick. Thanks for joining us. Welcome to Wealthion.

Nick Gerli: Great being here with you, Maggie.

Maggie Lake: You focus specifically on housing and really go deep into markets across the country. Someone said something interesting to me the other day: Fed Chair Kevin Warsh has talked a lot about AI, but not so much about housing. There's a lot of concern out there. What are you seeing when it comes to the state of the US housing market right now?

Nick Gerli: Housing is now in a multiyear recession. Some could call it a depression when it comes to sales and demand. The number of people buying homes in the US fell below four million annualized in August 2026. That's roughly at 2009 levels of sales. Current buyer demand is at great financial crisis levels. When adjusting for the size of the housing stock, demand today is the lowest it's been in 40 years.

Very few people are buying homes. One of the main reasons is that prices are still very high, and mortgage rates have gone back above 7%. It's a really tough market for buyers and for real estate professionals.

Maggie Lake: If we're going back to those levels, I think we all remember what it felt like back then. What data points tell you the situation is that bad?

Nick Gerli: Sales numbers are really low. The other thing we're starting to see is lower prices in some markets. That's one difference between now and 2008 to 2009. There was a big drop in prices pretty quickly back then. There hasn't been a big national drop in prices this time.

However, certain markets in Florida, Texas, Tennessee, Arizona and Colorado are starting to see values drop. One thing I do at Reventure is travel around the US and go to these local housing markets. I'm finding lots of sellers underwater and selling at losses from what they bought for three to four years ago.

Maggie Lake: Nothing like boots on the ground, so we appreciate that. Years ago, someone said to me that real estate is local. I'm talking to you from New Jersey, and it does not feel like the market you're describing. People can't find a house. You get posts on Facebook saying people are looking for something, moving out of the city or wanting a particular school district. They're trying word of mouth because it's been that tight.

Is that the top of the cycle rolling over, or does it depend on where you sit?

Nick Gerli: It totally depends on where you are. This is one of the most bifurcated housing markets we have ever seen in US history. I'm glad you brought up New Jersey, because that's one of the hottest housing markets in America, particularly some suburbs outside New York City in northern Jersey, and suburbs outside Philadelphia in southern Jersey.

Prices are still going up 5%, 7%, 8% year over year. The main reason is an inventory shortage. There simply aren't enough homes for sale. They talk a lot about the national housing shortage. I'm sure you've heard that.

Maggie Lake: Yes, this is one of my questions for you.

Nick Gerli: They say we're three million to five million homes short in the US, and that's often used as an excuse for why prices are still high. But that's super regional. New Jersey legitimately has a housing shortage. They don't build many homes. It's almost impossible to get permits there. I know builders in New Jersey who say how hard it is. Owners tend to stay for a long time after they buy.

Conversely, where I am in Nashville, there's building left and right. It's like a conveyor belt: people come in and move out every two to three years. A lot of the homes I see on the market today were only bought three years ago. Inventory in Nashville is literally at a record.

Depending on where you are, you're going to have a completely different experience. Generally, the Northeast and Midwest are in more of a shortage, and prices are still going up. In the South and West Coast of the US, there's a surplus of supply and prices are starting to drop.

Maggie Lake: We love addressing narratives and then getting underneath the hood with people who understand the sector. You hear all the time, especially in a high-tax state like New Jersey, that everyone's moving south for warmer weather and better taxes. How do the supply and demand dynamics work if that is true?

Nick Gerli: That was very much a 2010s and early-pandemic narrative. The exodus from New Jersey, New York, Connecticut and Chicago did happen then. However, something has changed in the last three years. That exodus is not happening nearly in the same way.

I would argue a reverse migration trend is starting, with people moving back to some cities in the Northeast and Midwest and maybe starting to leave some boomtowns in the South. That was a true narrative in the 2010s and early pandemic. It's not happening to the same extent anymore, and that's why we're seeing such high housing supply in the South.

I travel around Florida a lot. I was just in Las Vegas, as well as Texas. Supply in these markets is breaking ten- to fifteen-year records of inventory on the market, and sellers are taking losses. That is shocking to many locals because they're still fed the narrative that all the people from California are moving to Las Vegas.

But home sales in Vegas are down 40% over the last four or five years. Clearly, that's not happening in the same way anymore. Housing is slow, and the narrative around housing is slow. Over the next couple of years, more people will realize that the so-called legacy housing markets in the Northeast and Midwest are starting to gain. In the short term, a lot of people still aren't aware of it.

Maggie Lake: This is so interesting. We'll talk about financing in a minute, because high rates are an issue. With reverse migration and the end of the move south, does it feel temporary and cyclical? Have you figured out why it's happening?

Nick Gerli: There's a very cyclical nature to Sun Belt migration in the US. Every ten to twelve years, a new cycle kickstarts itself. In the mid-2000s, there was a boom and bust in Sun Belt migration. It peaked around 2005 to 2006, near where it was in the early pandemic, and then fell off the table, much like today.

For the next five or six years, Sun Belt migration is low. To be clear, some of these markets still have people moving in. It's not a mass exodus. Net migration levels drop 60%, 70%, 80%, and you really feel that locally. Those markets get cheaper over time, allowing a reset.

I'm not a doomsayer on the Sun Belt over the long run. I live in the Sun Belt and have lived all around it for the last five years. There are lots of positives. But these markets got too expensive, especially for locals during the pandemic. Now migration has dropped, and a reset is taking place.

Maggie Lake: The cure for high prices is high prices. We were just talking about that with commodities, and real estate is a real asset. How does second-home or retiree baby boomer behavior factor in?

What we saw firsthand in 2007 to 2008 was that when prices started going down, people got spooked, especially if it wasn't their primary residence and they held it as an investment or second home. If you're a boomer with a second home in North Carolina and prices are dropping, does that accelerate the spiral? Where are we in that cycle?

Nick Gerli: The baby boomers have been surprisingly resilient.

Maggie Lake: Because they have a lot of assets.

Nick Gerli: They have a lot of assets. I'm fascinated by seller psychology. I can look at a market like Orlando or other vacation markets in Florida, where supply is at a fifteen-year high, demand is near a ten-year low and prices are down 10% to 15%. Yet many baby boomer owners will still say this is a great market to own in.

Maybe that's because the stock market is still high and they own mortgage-free. There isn't the same pressure to sell. I think today's baby boomers are more resilient than owners twenty years ago.

The bigger story is the next five to ten years, as they age out of homes. The silver tsunami has been discussed for five years, and it's real. It's starting. A lot of baby boomers who bought starting in the mid- to late 2000s will start aging out of their homes in the next ten years. The oldest baby boomers are now 80.

The story is less about them panicking and offloading a second home now, and more about a structural increase in supply in baby boomer vacation markets in the Sun Belt over the next ten years, due to aging demographics.

\[Wealthion membership promotion omitted.\]

Maggie Lake: That makes sense, that they'd be a bit more resilient. Who is the buyer boycotting the market right now? Is it household formation? Is it younger buyers?

Nick Gerli: It's younger buyers, millennials and Gen Z, but it's also across the board. If you're buying with a mortgage, which 70% to 80% of people still do, the math doesn't make sense.

With current prices and mortgage rates around 7% to 7.5%, the typical monthly mortgage payment in the US, including taxes and insurance, is $2,850. That's close to $36,000 a year. Median household income is around $87,000. Dividing roughly $35,000 by $87,000 gets close to a 40% mortgage-payment-to-income ratio on gross, pretax income.

\[Editor's note: $2,850 a month equals $34,200 a year, or approximately 39.3% of $87,000. The annual amounts in Gerli's spoken example are approximate.\]

A lot of people can't even qualify. I think Lennar, the second-biggest homebuilder in America, said in a recent earnings report that roughly half the people who come to their sites to look at homes immediately don't qualify. That's a reality: a huge portion won't qualify.

Among people who do qualify, some look at buying versus renting and say it's actually 30% or 40% cheaper to rent the same house. Why would they buy? On multiple levels of affordability and buying versus renting, the math isn't working, and it's pushing buyers out.

There's a third segment that can afford it but looks at prices and refuses to pay $600,000 for a house that sold for $400,000 five years ago.

Maggie Lake: Or they don't want that much of their income going toward it. When my husband and I were looking at houses, I said that's a lot of wine and sushi out of my budget. I don't know if I want to go for that.

Nick Gerli: That's real. People don't want to become house-poor. This is another generational shift. In the mid-2000s bubble and leading up to it, there was more psychological buy-in to the American dream. People were more willing to take financial chances to own a house.

I don't think the millennial and Gen Z population is like that. They grew up after the financial crisis and sometimes see owning a home as a burden. People have been living in new luxury apartment communities where, if something breaks, they submit a maintenance ticket and it gets fixed.

Then they go from that to buying a house with a higher payment and having to go to Home Depot on the weekend. From a lifestyle standpoint, some millennials and Gen Z buyers might not want that. It puts even more focus on affordability and value. I believe people still want to buy houses, but at realistic prices.

Maggie Lake: I think you're spot-on. Throw in pools, gyms, community rooms, game rooms and movie nights, and they're getting a lot of what they need in those apartments. How much is the high mortgage rate factoring into the decision to buy versus rent? How much of a barrier is it?

Nick Gerli: It's a definite barrier. If rates were 4%, more people would buy. However, I don't think incremental moves in mortgage rates mean as much as people think.

Rates have bounced between roughly 5.8% or 5.9% and 7.5% or 7.6% over the last four years. In that range, there has been no discernible change in demand. It's been really low regardless of whether the rate was 7.5% or 5.9%.

There must be some rate below that which unlocks more buyers. But even the recent run-up isn't changing things that much, because at 6.5% it was already hard to afford a home.

Builders are almost operating in a separate housing market. They account for about 15% of total home sales, roughly one in six, so they're impactful. They're offering aggressive mortgage-rate buydowns.

I think D.R. Horton, the biggest builder in the US, said in a recent earnings call that its sales backlog had a 4.9% mortgage rate. Often those buydowns last the full term. Buying from some builders can get you a rate perhaps two percentage points below the market.

Yet even at those rates, and with price cuts, demand still isn't great. It's okay. Rates going down would help, but I don't think it changes the calculus much. We'd really need mortgage rates to go to 5% and prices to drop 20%. If those two things happened, I think there would be a big rebound in demand. Short of that, I think we'll be stuck in this phase for the next couple of years.

Maggie Lake: Prices may matter more, or have to move in conjunction with rates. A lot of people think rates are too high and bringing them down would revive housing. You're saying it's not that simple, and that alone won't do it.

Nick Gerli: It's definitely not that simple. I agree that prices matter way more than rates. If you look at a 130-year chart of the US housing market, going back to around 1890 or 1895, and compare mortgage rates with inflation-adjusted prices, one thing becomes clear: a mortgage rate around 6.5%, 7% or 7.5% is not crazy. That's normal over that history. Even in the 1990s, we had rates around 8% to 9%.

What's completely different is inflation-adjusted home prices. On that graph, they're through the roof, even higher than the 2006 bubble. I can send it to you. When you look at the graph, the problem becomes clear: prices.

Seven percent mortgage rates are annoying, especially relative to today's prices. But people who lived through the 1970s, 1980s and 1990s wouldn't consider that rate a big deal. Rates were so artificially suppressed in the 2010s and early pandemic that it has created the idea that a 7% mortgage rate is too high.

Maggie Lake: That's interesting, especially since prices have come down but not enough to change the scenario.

Nick Gerli: No, they haven't. Some markets are interesting test cases. Austin has gone down 27% in value in the last four years. It's the biggest housing bust in the US right now. It was one of the biggest booms, and now one of the biggest busts.

What's happened since that 27% decline? Not a whole lot. Sales are still pretty low. We're in a moment where people aren't really into buying real estate. Even if prices drop more, I don't think we'll see an immediate increase in demand.

Prices are dropping in Florida, but sales are still really low. There's a heavy lag with real estate. People aren't interested in buying. They can't afford it, and inertia has built up over four years.

Imagine people house hunting during the pandemic and directly afterward. They couldn't afford it and were disappointed. A lot have checked out. As prices fall, demand won't rebound right away.

Maggie Lake: That makes it interesting to figure out the magic number. What piques the interest of someone who's turned away? It's like retail: a 25% discount might not interest them, but at 40% they may window-shop. It's not an exact science, and it's psychological. You need a few things to line up.

Nick Gerli: You do. I'll give you a personal anecdote. I bought a house earlier this year. It was down the street from one of my close friends, in an area I'd visited for a long time.

The seller was already listing it at a loss of about $70,000 to $80,000. I toured it and sensed a desire to sell. I submitted a low offer at a price where I'd feel comfortable buying. It ended up being $170,000 less than the owner had bought it for a couple of years ago.

Maggie Lake: That's a haircut.

Nick Gerli: A huge haircut. I wasn't even thinking it would be accepted, but it was. I bought a house that sold for $490,000 in 2023 for $330,000 today.

Maggie Lake: Yay for you, Nick.

Nick Gerli: Yay for me, but the point is that it was a no-brainer: a 35% discount in an area I'd already visited and liked. Maybe that's what people need: a great deal, tremendous value, a price they feel good about, and an area they like.

\[Editor's note: The two prices imply a $160,000 difference, approximately 32.7%, rather than $170,000 or 35%.\]

Maggie Lake: Multiple things lining up. I was grimacing before I cheered because, as homeowners, we know the pain it must have taken for that person to accept such a loss.

Many listeners are interested in investing in real assets, and real estate has always seemed attractive. Older people in retirement, especially in the Northeast, benefited from huge appreciation and could do a lot with it. Is this housing recession limited to single-family homes in certain pockets, or is it across more sectors?

Nick Gerli: It's really concentrated regionally in the Sun Belt: Florida, Georgia, Texas, Tennessee, Arizona and Nevada. That's where you can find the best deals as a buyer right now.

It's also concentrated more in condos and townhomes. Some are down 40% to 50% from peak pricing, particularly in Florida with high homeowners association fees. It's happening in single-family homes too, but there are neighborhood differences.

In Atlanta, half the home-price map is down 15% to 25% over four years, while the other half is still up 5% to 10%. What drives that? Look at income levels and home prices. The higher a neighborhood's income, the more resilient prices generally are. Lower incomes and more investor ownership are associated with bigger price declines.

That's one of the most consistent themes I see across markets. There's almost a K-shaped housing market, similar to the K-shaped economy. Lower- and middle-income people are starting to take losses and liquidate houses. People at the higher end say they don't need to sell, and values are more resilient.

Maggie Lake: I'm going to guess they also update properties and invest in schools. There are things that make those neighborhoods attractive, whether through property taxes or their own efforts. Anecdotally, high-income families may create foundations to put money into schools separately from property taxes. Those things probably help retain value at the margin.

Nick Gerli: It's a good point. I've researched whether demand or supply is influencing that split more. I found it's more supply. Demand to buy is down by a similar amount in high- and low-income areas, looking at sales, but supply has grown much more slowly in high-income areas.

That makes sense. Higher-income people have stock portfolios and higher income, and they're more likely to have a cheap mortgage rate. They're more likely to have refinanced in 2020 or 2021.

That's another huge difference. A seller with a 3% rate occupies a completely different headspace from one with a 7% rate in terms of willingness to negotiate and cut prices.

The 3% mortgage owner implicitly values the property at its market value plus an implied value for the interest savings from staying. Someone with a 7% rate may struggle to afford it.

Maggie Lake: They're carrying that strain.

Nick Gerli: Right, or they're house-poor. Certainly, the mortgage isn't as valuable as one with a 3% rate.

We'll see more individual seller differences. Even within one neighborhood, someone who bought in the last four years with a 7% rate behaves differently from someone with a 3% rate: different pricing, different willingness to transact. People looking to buy should look at the seller's mortgage rate, because it can reveal a lot about willingness to negotiate.

Maggie Lake: What about areas with high levels of investors? Are they underwater? Are we looking at multifamily properties that REITs tend to get involved in?

Nick Gerli: The Wall Street Journal ran an article a couple of days ago about a $2 trillion refinancing wall for multifamily. Apartment landlords took out cheap debt, around 3% to 4%, in the late 2010s and during the pandemic. Most apartment loans have terms of five to ten years.

Those loans are rolling now and over the next couple of years. Landlords are going from a 3.5% rate to 6% or 6.5%, doubling interest burdens in some cases, which means many won't cover their debt service.

At the same time, rents are dropping in many markets. Austin rents are down 20%; Nashville rents are down close to 10%. Imagine an apartment landlord who bought or developed in 2021 and forecast 4% to 5% rent growth for the next five years. Instead, rents might be down 15%, while 3.5% debt becomes 6.5% debt.

That's causing distress in multifamily. Investors I speak to say the number of real-estate-owned properties and foreclosures hitting the market is ramping up, and they're seeing discounts of 20% to 30%. Those could get bigger.

Single-family isn't quite as severe in the short term, but real things are happening. Big corporate investors stopped buying starting in 2023. They were recently banned from buying further starting in January 2027. The ROAD to Housing Act bans corporate investors owning more than 350 homes from buying more existing homes. Corporate buyers are now frozen out of the market.

\[Editor's note: The law's threshold is 350 or more homes under the statutory investment-control definition, with exceptions. The purchase restrictions take effect on January 7, 2027; they were not already in effect at the October interview. Gerli's wording should not be read as a blanket ban on all corporate purchases.\]

The math also doesn't make sense for many smaller investors, given mortgage rates and Treasury yields. The ten-year Treasury is now above 5%, while a single-family rental cap rate is 4.8%. That means you can make more buying a US government bond than buying an investment property and worrying about evictions and roof repairs.

\[Editor's note: This is Gerli's comparison at the time of the interview. A property's capitalization rate and a Treasury yield measure different risks and are not directly interchangeable total-return measures.\]

It's tough for real estate investors. The green shoot is that, for the first time in more than fifteen years, real opportunities are starting to appear. There's distress in different sectors, and I think we'll see bigger discounts over the next year.

Maggie Lake: That's interesting for someone coming in who hasn't owned. It sounds as though there may be a wait, but there will be opportunity as prices reach their natural trough.

When multifamily investors have delinquencies, hit the refinancing wall and exit markets, it brings up the ghost of the 2007 to 2009 crisis. We had neighborhoods with huge amounts of foreclosure, creating a downward spiral. You didn't want to own a home in an area with high foreclosure rates. Are we facing another situation like that?

Nick Gerli: Somewhat. It's similar but different. The similarities are overvaluation and the drop in demand, along with the early stages of a deep crash in builders, multifamily and condos.

But we don't have nearly as many bad mortgages in the single-family market as in the mid-2000s. The foreclosure rate eventually reached 4.85% of mortgages in the earlier crash, around 2010 or 2011. Delinquencies were close to 8% or 9%. I don't think we'll come close to those levels this time, which is good because that was really bad.

We don't need to hit those levels to see real value declines. I'm seeing Florida sellers who bought for $450,000 selling for $300,000. Often it's a short sale, suggesting mortgage distress and an effort to sell before foreclosure. Even a moderate uptick in single-family mortgage distress in oversupplied markets can come with huge declines.

Multifamily is interesting because that side is worse than in the mid- to late 2000s. Fannie Mae and Freddie Mac multifamily delinquency rates are matching or exceeding 2009 levels. Commercial mortgage-backed securities delinquency rates are starting to approach those levels.

That's striking when US unemployment is still only 4%. Commercial mortgage delinquencies are shooting up, and one wonders what happens if unemployment rises a little. It's a mixed story, similar in some ways to the earlier crisis and different in others.

I don't think we'll have a huge offshoot banking crisis from this housing downturn. Mortgage quality is better, banks aren't as exposed and homeowners have more equity. There's more cushion before things become severe.

Maggie Lake: Last question. I saw the other day that Berkshire Hathaway's largest holding is Lennar. That's interesting given what you've described, although you see some green shoots for the longer term. What do you make of that?

\[Editor's note: The claim that Lennar is Berkshire Hathaway's largest holding is not supported by Berkshire's latest available quarterly report. Its June 30, 2026 report identifies five other companies as its largest equity holdings. The following exchange records the speakers' discussion, not a verified account of Berkshire's holdings or investment rationale.\]

Nick Gerli: I did see that news story. Lennar has probably cut house prices more than any other builder, about 30% from the 2022 peak. I think it was selling a typical house for around $510,000 net of incentives in 2022; now it's around $360,000.

That's a legitimate crash in pricing, partly reflecting price cuts plus mortgage-rate buydowns leading to that net price. I wonder whether Berkshire is looking at that and seeing a logical bottom. Lennar has gone through a correction more than other builders and has done a better job driving orders. Maybe that's what they're thinking.

Personally, I still think there's more pain coming over the next year or two, so I was a little surprised. Maybe they're loading up now. Their thesis might be that some builders have already cut quite a bit and gone through the painful restructuring, leaving them well situated.

Maggie Lake: It's interesting that they feel they need to get in now. Berkshire doesn't like to react; it likes to try to be first on some things. If we're hearing about it now, they were probably doing it well before this. We usually see it after the fact.

Nick, what a great conversation. It's thoughtful and interesting to hear nuances that aren't apparent when we look around our own neighborhood and think we know what's going on. Really great stuff.

Nick Gerli: Of course.

Wealthion is a dba of Greylock Peak Investments, a registered investment adviser. This newsletter is general information only. It is not investment advice or an offer or solicitation, and it is not tailored to your circumstances. Guests’ views are their own and may not reflect those of Wealthion. Wealthion has not verified guest statements, including any performance figures. Investing involves risk, including loss of principal, and past performance does not guarantee future results. Wealthion refers readers to other registered investment advisers and shares in the fees they receive from referred clients, which creates a conflict of interest. Please see our Form ADV Part 2A, and consult your own financial advisor before investing.