A pretty good Twitter thread that explains what is happening and what the likely outcome will be except he doesn't even touch the issue that AirBNB failures are starting to hit the market driving up inventory and that will progress faster and faster.

I copied most of it here but I suggest reading his thread.

Is another Mortgage Crisis brewing?

Homebuyer Debt-to-Income Ratios (DTIs) are now approaching 40% in the beginning of 2023.

That means homebuyers are now spending 40% of their gross income on mortgage and interest costs.

Same level as 2006.

Also, the average downpayment for homebuyers over the last several years is actually LOWER than it was during the mid-2000s bubble.

The 2008 Housing Crash is constantly blamed on "bad mortgages".

Bad mortgages that everyone assures us aren't being issued anymore.

Yet somehow homebuyers are putting less money down, and taking on similar interest burden, in 2023 compared to 2006.

Which means there will inevitably be lots of foreclosures in this housing cycle.

All it will take is some economic turbulence and for the unemployment rate to rise meaningfully.

Then mortgage defaults will jump. As they always do.

But for now mortgage defaults are low because the unemployment rate is low.

And because people are finding ways to take out other forms of debt (credit cards, personal loans) to fund their spending and mortgage costs.

And really the big issue here is the US Government.

Particularly the FHA loan program.

These risky first-time homebuyer loans where people put only 3% down were a small share of market in the mid-2000s.

Much larger share of the market today.

The government continues to try to make it easier and easier for people with lower credit scores and without much money to buy houses.

With the FHA Homebuyer DTI increasing from 35% in 1997 all the way up to 44% in 2022.

And it's likely even higher in 2023.

Moreover - the overall level of mortgage interest debt as a % of gross disposable income is also near an all-time low today.

Causing some people to believe there won't be a crisis in the mortgage market.

However, the reason aggregate mortgage interest is lower is because the US population has aged significantly.

With more and more homeowners paying off their mortgage and owning free and clear.

There's approx 38 million houses in America with no mortgage today.

However, there are still nearly 60 million mortgages in America.

With many of those owners struggling to afford their payments (even if they have a "low rate").

About 14% of all houses have a rate below 3%.

Another 12 million houses in America are vacant for seasonal use, held off the market for rent, or kept as 2nd/3rd homes.

Meanwhile, houses listed for sale number only 614k acc to https://Realtor.com

Meaning that vacant homes outnumber listed homes by nearly 20:1.

All this is to say - there are lots of ways that inventory can increase significantly in the future.

Right now homes for sale acc to NAR are 50% below long-term average.

But it wouldn't take much mortgage distress and selling of vacant properties to cause a big spike.

And tying things back to the original point:

With nearly 60 million mortgages out there, and homebuyers over the last several years taking on sky-high interest payments and putting low money down, there is big potential for defaults and foreclosures.

These defaults and foreclosures won't be as bad as what happened in 2008.

But they don't need to be.

Inventory is so low that even a modest increase in defaults and foreclosures could cause a big downward shift in the market.

I'm fairly certain the average person has no idea that homebuyers in 2023 are taking out a similar level of debt as buyers in 2006.

That knowledge changes your perspective quite a bit on what's happening in this housing market, and the sustainability of low inventory.

Twitter thread with more info