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While browsing reddit a few days ago I forgot that I wasn't on TheMotte and tried to make a hypothesis post. This led to much screaming and crying and rending of clothes. So I decided to repost it here to see what people think. Am I crazy or am I right?
at leastEdited to "about" 20% within the next 6 months. I have about a 90% certainty in this.Reasoning: The current housing market as it stands is a mirage, not an indicator of growth. The market should have crashed in 2020, but it didn't because COVID. All of a sudden millions of people had the flexibility to move away from their place of employment because of work from home. Fully 60% of the home-buying surge was fueled by this trend according to the Fed, whose numbers I have no reason to mistrust. This sudden surge in home-buying has largely abated. According to RedFin, mortgage rates are their highest since 2002, searches for "homes for sale" are down 35% YoY, the Homebuyer Demand Index is down 25% YoY, and mortgage purchase applications are down 39% YoY. The market is cooling off. I believe the coming crash will be around 20% because historically that's a safe bet. The late-90s crash saw a drop in home prices of 14%, the 08 crash saw a drop of 27%, I think this crash will be somewhere in-between, hence 20%.
We are either in a recession right now, in which case I'm right, or we're about to be, in which case I'm right. Popular opinion defines a recession as two consecutive quarters of negative GDP growth. If that is the case the recession has already started. The National Bureau of Economic Research defines a recession as a "significant decline in economic activity that is spread across the economy and lasts more than a few months". So let's look at a few indicators. Ignoring inflation for the moment, retail and food services sales, total, peaked in May and have been on a slow but definite decline since. The Conference Board Leading Economic Index is down 2.7% since February. The S&P 500 is down 22% YTD. Oh, and almost every single CEO in the country believes there's gonna be a recession.
I predict that this recession will not be "mild", but nor will it be as bad as 2008. Somewhere between the Dotcom bust and 08 is my prediction, which I have about a 70% confidence in.
I predict unemployment will rise by more than 1%, but less than 5%. Somewhere in-between, with about 50% confidence.
These two predictions are functioning from the same basic premise. I'm pulling all my historical numbers from here. The 2008 Recession saw Real GDP fall 8.5%, unemployment reach 10% (a rise of about 6%), and the S&P500 drop 57%. The DotCom crash saw Real GDP fall by 1.6%, unemployment reach 5.9% (a rise of about 2%), and the S&P500 drop 62% (S&P drop pulled from here). I believe that the coming recession (if it happens - see above) will not be as bad as 08 because many of the co-factors that made 2008 so bad do not exist here, but that it'll probably be worse than the Dotcom crash because the Dotcom crash was largely caused by over-speculation on internet companies (hence "dotcom" crash) and low interest rates. We don't have low-interest rates anymore, but I think co-factors here (namely high inflation) will mean this one is going to be worse. My unemployment prediction is similarly predicated on this recession being somewhere between Dotcom and 08 in severity. If we're somewhere between those two numbers (2% and 6%) then a guestimate of between 1 and 5% is reasonable.
corporate, IPEDIT: specifically M&A (bankruptcy could be considered part of the "corporate" umbrella term, and I put IP here by mistake), and tech practice groups will have reduced or frozen hiring.Law firms have taken steps since 2008 to try and avoid mass layoffs. With that in mind, the legal practice has only just recovered from 2008 in terms of raw employment numbers. Recently firms have shifted their recruiting approach. To quote from the Reuters article:
Some practice groups are never busier than during a recession. Bankruptcies surged by just over 30% during the 2008 crash, and firms are preparing for this business to pick up. Similarly litigation is a counter cyclical practice that picks up during periods of a bad economy. It makes sense when you think about it. When the economy is good, people don't want to sue. When times are bad, they do. On the other hand, M&A tends to cool off in a recession.
I was accused of "LARPing as an economist" and "pulling these numbers out of my ass", so I thought I'd post them here for the Motte to give me a more rigorous examination.
Tangential development that isn’t yet large enough to be a systemic problem but is small-scale horrifying:
Since the refi boom is over and sales are slowing, originations departments are looking for ways to lower costs for consumers, so they can write more loans. One old, bad idea being kicked around again is attorney title opinion letters. And Fannie Mae has begun accepting them in limited amounts.
The attorney title opinion is a written letter from a lawyer that says based on the public records they were able to review, the title on the property you are buying is clear. It’s a cheaper alternative to title insurance, but what it isn’t, is title insurance.
Now, title insurers make good money. As an industry, they bring in billions in premiums versus paying out hundreds of millions in claims. But they also protect consumers against error and fraud.
Most homebuyers would surely love to save several hundred dollars in closing costs. But the ones that get burned and wind up in contested law suits are going to be out five figures in legal costs. Uncontested title resolutions run $1,500 to $5,000.
Most obvious application for Blockchain combination of NFTs and Cryptocurrency to eliminate the title insurance industry, n'est pas? Assign an irrevocable NFT to the ownership of the property, create an automatically executing contract upon the receipt of the correct amount of bitcoin, eliminate trust issues in real estate transactions.
Unfortunately actually setting up and maintaining that probably costs as much as the current title insurance scheme anyway.
If the bank forecloses on your house, or if the IRS puts a lien on it, how do they seize the NFT from an uncooperative owner? If you lose the password to the wallet with your house's title NFT, or if someone steals it, do you become homeless, or is there a process to issue you a new one? If so, how is the old one invalidated, and how does a buyer know that he's buying the legit NFT instead of a previously voided NFT? How do you end up not just having to buy NFT title insurance to check all of this stuff and insure against the risk of some weird edge case, on top of all of the gas fees you now also have to pay?
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As most people here know, I'm a lawyer and I mostly work in the oil and gas industry doing titles, and while I've only done a few real estate titles in my career, O&G titles cover all of the same ground and then some, so I consider myself especially qualified to respond to this given that I spend all day looking at property records. This is a completely unworkable proposition.
First, there are interests other than outright ownership of the entire property that would affect the validity of title. Mortgage holders, holders of easements for utilities, oil and gas lessees, etc. The way it works now is that the property owner executes an instrument conveying the interest and it's the responsibility of the person receiving the interest to record it with the county. So who has the authority to edit the NFT? That's sort of a trick question because NFTs can't be edited, though the metadata can. The problem there is that if I can edit NFT metadata I can also edit away any pesky title defects and the whole issue is moot; I can't just mosey down to the local recorder's office and tell them to delete my mortgage from their records because I don't feel like paying for it. And it really would have to be editable by anybody because there are a lot of instruments relating to your property that are totally one-way transactions that you'd prefer not get on there. Like judgment liens, mechanic's liens, tax liens, condemnations, lis pedens, etc. And all this metadata would have to be viewable by the general public because there are a surprising number of people out there who need to know what is going on with property.
But these are all just technical problems; suppose you could create a publicly-viewable NFT system that can only be edited one-way that anyone can theoretically add to. Well, now you've just gotten us to the level of security of a title opinion and not title insurance. Because the real risk isn't what's out there but what isn't. I'll use an example to illustrate my second point:
Suppose an old man owns a piece of property and dies seized of it. He leaves no will, and has four surviving children. One of the children is appointed administrator of the estate and, along with the three remaining children, he executes a deed conveying the property to a third party. Except the old man actually had five children, one of whom moved across the country decades ago and has been dead for years. He had two children who aren't close to the rest of the family by virtue of distance and were minors at the time of the old man's death. The administrator didn't hire an attorney and no one in the family is particularly sophisticated when it comes to probate law. Years later the grandchildren find out about the property that had been sold out from under them and to which they were entitled to a share of the proceeds. The third party has since sold the property to you, and the grandchildren are now suing you to quiet title. Regardless of the outcome of the case, you're now stuck paying to litigate this, and this isn't the kind of thing that a diligent title search would uncover and isn't the kind of thing that could be entered into the blockchain, since no one knew about it until well after the transaction was already completed. In other words, this is exactly the kind of situation title insurance is supposed to deal with.
The trick to this is that you have the ownership represented in an NFT and then have additional NFTs pointing to the title NFT to represent things like liens. This gets you to public and anyone can modify it. Then you have the normal legal infrastructure in place with a backdoor ability to void NFTs and punish people minting them illegally.
Yep. That could work. And then you've essentially replicated the existing system except with NFTs instead of instruments recorded with the county. Except without a team of clerks screening the instruments for basic legal requirements and making sure everything is indexed properly. So now it's like a recorder's office where there are signs and pamphlets telling you what to do but where everyone is left to their own devices jamming things into folders and creating their own index entries. And this is supposed to eliminate the need for title insurance?
It's supposed to essentially centralize things, ironic for crypto I know. Especially from a bank perspective being able to see at a glance the state of a title without digging through obscure county records is a win even if it doesn't completely eliminate title insurance. Hell, you could probably run automated health checks on securities this way.
I don't know what you think the current system is like, but to a large degree it already is centralized, at least as centralized as it could possibly get using blockchain; what do you think a county recorder's office is for? Computerized records and uniform parcel identifiers have made things a lot easier, at least as far as instruments recorded in the past 20 years or so are concerned. Hell, I'm at a recorder's office right now and I can enter a parcel number into the computer and it will tell me every instrument cross-referenced to that parcel number that was recorded since they started doing these things. And the system is available remotely. If I want to record something in this system I have to follow specific guidelines set by the county to make sure that I actually identify the property correctly, include all the necessary notary stamps, etc. And they will take time to make sure that everything is appropriately indexed and cross-referenced. Switch over to a blockchain that anyone can theoretically edit and now you're going to have every Joe Schmo who has no idea what he's doing entering instruments that only cause more title defects and situations where things aren't appropriately indexed or cross-referenced. If you don't think this will happen, go to your local recorder and ask the clerk for some war stories about people who try to write their own deeds without the assistance from an attorney, or how many people ask about "getting someone's name on the deed", or off the deed. Or go to a recorder's office in rural parts of West Virginia and try to run a title and see how things were done there prior to the 1990s, when clerks would apparently record anything and everything that was presented to them. And this doesn't even get into all the specific oil and gas stuff where things really get wild and wacky.
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Isn’t the big issue that all of this can be recorded in a government database instead of a blockchain. And a government judge is the one who at the end of the day decides all these title issues. Being that the government still has the monopoly on violence and the blockchain doesn’t have a single soldier it’s the government that ends up enforcing the title.
And the people trying to enforce their title sort of prefer the titles recorded with the person with the monopoly of violence.
Title for blockchain has been around for 7-10 years.
Honestly the only blockchain thing I believe has some potential is ad attribution that Antonio Garcia’s doing but maybe I just don’t know the intricacies of that industry.
Russia proves the problem with blockchain for a lot of contracts. You want the enforcer of a contract to have a violent force. The Minsk Agreement on a smart contract doesn’t stop Russia from invading.
Yeah, that's part of it, but it wasn't the particular point I was trying to make. The bigger point I am trying to make is that land titles aren't simple A --> B transactions; they're really complicated. Various interests in a piece of property can be divided and subdivided and sold and reconstituted with the parent tract and each one of these interests would need a separate NFT created for it and yeah, maybe you could theoretically do this but at best you'd just end up with a more complicated version of the existing system. And then you add the complicating factor that a lot of things that affect title aren't filed with the recorder, but with the civil court, or with the probate court, or the tax assessor, and now you essentially have to put every shred of paper in the county government on the blockchain somehow in order to make sure everything is covered.
And even then you still wouldn't eliminate the need for title insurance, because title insurance largely protects against issues that occur outside the existing system. You can implement as many recording requirements as you want, but there will always be title issue which, by their very nature can't be determined simply by looking at records. I would add that blockchain for contracts may be a thing but deeds aren't contracts and title insurance isn't insurance against someone not following through on their end of the deal. Honestly, I'm not entirely sure what your getting at here or what your understanding of the current recording system here in the US is, so I apologize if I'm misunderstanding you, but I'd be happy to answer any questions you may have.
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This is part of it: existing proof of work is absurdly inefficient compared to a trusted database. Even proof-of-stake is still much more complex if a trusted party exists.
But I'd also point out that blockchain-related attempts to create their own governance have been doomed to slowly recreate much of the existing governance stack. There are already instances of "code is law" being worked around because software developers can find the same sort of loopholes that lawyers are famous for. I'm not going to say it's completely insurmountable, but it seems quite likely that these sorts of issues will continue, requiring the creation of a legal apparatus that looks a lot like a centralized court.
Many of the interesting use cases for "blockchain" (much of the traceability) really depend on Merkle trees that are ubiquitous in cryptocurrencies. Merkle trees are really useful, but don't strictly require the expensive distributed proofs in many interesting cases.
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Candidly, my knowledge of the housing industry outstrips my knowledge of cryptocurrency.
But, my first thought is that, no, I do not want decentralized titles. I explicitly want centralized titles. I want a lawyer, and a county clerk, and a judge, all talking about who owns what for most people will be the most expensive purchase(s) of their lives, if there is any sort dispute. I do not want ownership of my home tied to password security. I want wet signatures, and I’m bringing a blue pen, so I know if a document presented at a later date has been so much as photocopied.
Right now titles aren't really that centralized, which is the whole purpose of title insurance. What I'm proposing is centralizing them.
Then why not just have the state run a database instead of using the blockchain? At least a database doesn't come with gas fees, and errors can be corrected via legal process.
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This is called Torrens title, and it is the norm in the world outside the US. The goals of the system are the mirror principle (the register reflects the title, so that anyone who knows they are dealing with the registered proprietor can buy the property without needing to investigate the title or pay for insurance), the curtain principle (anything not needed to deliver the mirror principle, such as the identity of the beneficiaries if the registered owner is a trust, is off the register), and the indemnity principle (anyone who loses money due to the registrar's error, such as allowing a forged deed to be registered, is indemnified at public expense). The details of how this is achieved varies subtly between jurisdictions, but in all case the key is that a State-maintained centralised register is inherently as trustworthy as the underlying State-enforced land title (so blockchain adds no value).
Googling suggests a widespread lack of curiosity as to why the US has not adopted Torrens titles. The best good reason I found is that land law is a State function, and the States cannot impose a register-it-or-lose-it rule on the Feds as applied to e.g. Federal tax liens, meaning that a State-issued Torrens title could not be a true mirror. The likely bad reason is that title insurers have successfully lobbied against the change.
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