Two Real Estate Markets Are Running at the Same Time |
Mortgage rates are sitting at 6.75% on a 30-year fixed. Home sales in April came in at 4 million, one of the lowest monthly totals on record. Prices are mostly holding. Boring. Not collapsing (depending on your market...) |
That's the homeowner market. |
There's another one running at the same time. The investor market. And from where I'm sitting, it isn't fine. |
What I'm Seeing in the Field |
Investor delinquencies on hard money loans are rising. Quietly. |
I've had multiple conversations this past month with operators I've known for years thinking out loud about bankruptcy. Not asking for advice. Just sitting with the question because they don't know who else to ask. |
People are delisting properties they planned to flip and trying to refinance them into long-term holds, hoping the math works and they have enough cash to bring to close. |
Some do. Some don't. |
I'm in the same thing. Over the last 12 months I've taken at least six properties off the market and refinanced them instead to keep as rentals and ‘wait.’ |
A lot of people are doing the same thing right now. They just aren't doing it on purpose. |
Why You Don't See It |
The news isn't covering this part of the market because the homeowner data looks fine. 30-year fixed rate borrowers locked in at 3% during COVID aren't refinancing. They aren't selling. They aren't defaulting. |
The MLS data looks slow but stable. The foreclosure numbers on owner-occupied housing are still historically low. |
That's not where the pain is. |
The pain is on hard money loans. Bridge debt. Floating rate construction loans. Investor financing that re-prices every six months. None of that shows up in the headlines. |
Instagram is even worse. The operators I know who are quietly underwater aren't posting about it. The ones still posting are the ones who haven't blown up yet, or the ones putting on a face. The feed you scroll through is not a representative sample of the entire investor market. |
From my experience of being in the business the last 15 years full time, when someone starts to collapse, they just sort of fade away. They almost never post about it, or let everyone know publicly. Usually years later we go “whatever happened to so and so?” |
The Pattern |
I keep seeing the same set of behaviors in operators who are bleeding right now. |
Scaling too fast because the previous years were easier. |
Trying to make back a loss on the next deal (most common). |
Borrowing from Peter to pay Paul (I am Peter to a contractor right now actually...I wish I was Paul.) |
They stop answering calls. |
They ghost investors. |
They shut down communication. |
It's not because they're bad people. Most of them aren't. It's because they don't know what to say. They're trying to figure it out, and admitting publicly that they don't have it figured out feels like ending their career. |
So they go quiet. And the rest of the market doesn't see it. |
What This Means for the Rest of Us |
A few things to be thinking about if you're still operating right now. |
If you're partnered up with someone, ask hard questions. If you're invested with someone, ask harder ones. Don't accept "everything's good" as an answer when you can see that everything probably isn't good in this market. |
If you're buying deals, understand why a deal is on the market. There's a difference between a normal sale and a forced sale, and the forced sales are starting to show up more. Some of those are good buys. Some have problems you can't see from the listing. |
If you're lending or investing as a private money lender, slow down. Underwrite the operator harder than you underwrite the property. Reputation matters more than spreadsheets in this market. |
And on your own portfolio: liquidity. Reserves. Conservative exits. The boring stuff I've been preaching for a couple of years is more important today than it was two years ago, not less. |
There's nothing in the news right now that's going to capture this part of the market. |
The homeowner data is fine (for now). |
The investor side isn't. And most of the people in it aren't posting about it. |
You don't have to predict what happens next. You just have to operate like the people around you might be in worse shape than they're showing publicly. Because some of them are. |
That said...real estate is VERY LOCAL, and if you are in a market that is rising and killing it, congrats! |
Good luck. It's that sort of market right now. |
- Tarl Yarber |
(yes, I write these...I even click send at the moment too) |
Prices Go Up Tonight |
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