Ivy Zelman
EVP and Co-Founder of Zelman & Associates, a Walker & Dunlop Company
We don’t just have a shortage of housing—we have an affordability problem across all sectors.
As we kick off 2025, I’ve been fortunate to sit down with some of the brightest minds in housing, economics, and policy. I had the pleasure of hosting my colleague and one of the most respected housing analysts in the country, Ivy Zelman. Ivy’s insights constantly challenge my thinking and offer a lens into our industry's key trends and challenges.
Here are some of the most compelling takeaways from our discussion about the housing market’s future.
The affordability challenge: more than a numbers game
Ivy made it clear that the housing market’s greatest hurdle isn’t just about supply—it’s about affordability. With 75 percent of American homeowners locked into mortgages below 5 percent, fewer existing homes are hitting the market. With mortgage rates projected to remain “higher for longer,” affordability is stretched across the board.
Even new housing developments aren’t immune. Builders are struggling to match price points with what consumers can realistically afford. Inventory might exist, but absorption remains sluggish without significant price adjustments or incentives.
Takeaway: Building more housing is not enough—we need to focus on delivering homes at price points that align with buyers’ incomes.
Public builders on the rise
One of the industry's most striking shifts is the growing dominance of public homebuilders. Today, they produce 54 percent of new homes—up from a single-digit market share when Ivy began covering the sector three decades ago. Their access to cheaper capital and ability to scale operations gives them a distinct edge over smaller, independent builders, who often struggle with rising costs and regulatory hurdles.
What does this mean for the future? Ivy believes independents must focus on niche opportunities or consider partnerships with public builders to stay competitive.
Labor shortages and immigration’s ripple effects
Labor availability continues to weigh on the industry. Ivy pointed to the aging workforce and the potential for disruptions in subcontracting due to immigration-related challenges. While larger builders are better positioned to weather these disruptions, smaller players find securing skilled trades increasingly difficult.
This labor shortage further complicates efforts to accelerate housing production, reinforcing the need for creative solutions at both local and national levels.
Policy changes that could make a difference
When I asked Ivy what she’d focus on if she were advising policymakers in the White House, she didn’t hesitate:
- Reduce impact fees: These fees, which cover infrastructure costs like schools and fire stations, can add up to 15 percent of a home’s price in high-cost areas like California.
- Adjust FHA loan limits: Localizing FHA limits to reflect regional price differences could expand access to financing in high-cost markets.
These changes could significantly lower barriers for both builders and buyers.
Multifamily and single-family rentals: opportunity or challenge?
One might assume that rising home prices and limited inventory would spur explosive growth in the rental market. However, Ivy explained that while demand is strong, rent growth has slowed for both multifamily and single-family rentals. The underlying issue? Affordability. The same dynamics constraining homebuyers are also pricing out renters.
What’s next for housing?
As Ivy and I wrapped up our conversation, it was clear that 2025 will require collaboration, innovation, and policy action to tackle the industry’s affordability crisis. While challenges like labor shortages and regulatory hurdles persist, this sector's resilience and creativity remain a constant source of optimism.
Want more?
I’m incredibly grateful to Ivy for joining me on the Walker Webcast and sharing her unparalleled insights. If you haven’t already, I highly recommend diving into Zelman’s Housing Macro Forecast for even more detail on where the market is headed.
For more engaging conversation and debate about all things CRE, subscribe to the Walker Webcast.
What's Shaping the 2025 Housing Market? With Ivy Zelman, Executive Vice President and Co-Founder of Zelman & Associates, a Walker & Dunlop Company
Willy Walker: Good afternoon and welcome to another Walker Webcast. It is my great pleasure to have my friend, colleague, and incredibly insightful analyst in the housing markets, Ivy Zelman, joining me today. As I posted on LinkedIn yesterday, after having Mohamed El-Erian begin 2025, followed by Peter Linneman, and now followed by Ivy Zelman, I feel like I ought to get some honorary doctorate in economics, given the amount of homework I've had to do to be able to talk to these three great minds as it relates to the world we live in, the economies we're living in, and what to look forward to in 2025 and beyond. I also have to say that when the tragic fires hit California and we started to see the destruction evolve, I reached out to Ivy and said, “There are so many questions out there as it relates to the impact that these fires are going to have from a housing standpoint, from an economic standpoint. Could you come on and have a conversation about that?” Ivy was generous enough to say, in typical Ivy fashion, “I'm not the world's expert on a lot of those issues, but I'm happy to take what we do at Zelman from a housing standpoint and try and give some thoughts and ideas on the impact that the fires may have as it relates to the housing industry.” We are going to touch on that a little bit today. But most of what Ivy and I are going to talk about is Zelman's Housing Macro Forecast, which to anyone who hasn't read it, is an incredibly good read. It talks about where the housing markets in the United States are today, and where they are going to go for the next couple of years, and what Ivy and her team tell us all we should be looking at and thinking about as it relates to where to place your bets and where prices are going to go, etc. Before I open the conversation, finally, I will just say I did mention the California fires. I was just in L.A. this past weekend. The destruction is obviously tragic and the loss of homes, lives, and community is something that many people in the L.A. region and across the country are mourning. We have colleagues at Walker & Dunlop who have lost their homes. We have plenty of clients and friends who have lost their homes. We are obviously thinking about all of you and helping however we can to get you all back up and going. The rebuild in Pacific Palisades and other areas in L.A. County is going to take some real time. I think Ivy and I are going to jump in a little bit there on what the state of California has done and hasn't done to try and accelerate that recovery process. Ivy, welcome. Nice to see you.
Ivy Zelman: Nice to see you. Thanks for having me.
Willy Walker: President Trump was inaugurated on Monday. Here we are on Wednesday. There's been a flurry of executive orders. The stock market has been up for the past two days. The ten-year has stayed relatively flat from rallying after last week's economic news that looked like inflation was a little bit more under control than many had thought when the ten-year had gotten up to 480. Just before we dive into specifics, Ivy, as we begin the year, how are you feeling as it relates to the overall housing industry and the outlook as it relates to rates, growth, and public policy? Just a general feeling. Is it good? Are you feeling pessimistic, optimistic? Where's your head?
Ivy Zelman: No, I think overall, we continue to feel that the market's going to be challenged. Affordability is significantly stretched. We have a general view that rates are going to be higher for longer and with affordability likely to be negatively impacted by the continuation of constraints on available supply, home prices are likely, in our opinion, to still move higher. And while incomes might start to grow in more parity with home prices, we're still going to see upward pressure that might alleviate the problems that we see at the entry level. Predominantly, the move-up market remains pretty healthy and we're more optimistic there. But generally, I think the overall market is going to continue to be in what we call a slow grind---higher, but not that optimistic for significant growth.
Willy Walker: You talked about rates being higher for longer, Ivy. In this update, the first slide you put out there is Zelman's projections on where single-family mortgage rates, which obviously are tied to the ten-year. But we're going to talk about this from a single-family mortgage rate standpoint. One of the biggest shifts was from September to January where your forward look on where rates will be in 2026 moved from a 580 level to a 660 level, so up from a 580 projection for where single-family mortgage rates would be in 2026 up to 660. Talk for a moment about how that 70 basis point shift in your outlook then impacts every input into your models as it relates to starts, absorption, and all the other factors that play into the housing market.
Ivy Zelman: First, I would say that that 70 basis point increase is really what the forward yield curve is pricing in. We wanted to show you from a timing perspective how quickly the market is pricing in higher rates as it relates to single-family mortgages. That's really not our forecast. That's what the forward yield curve is forecasting. But as you said, it impacts all aspects of our forecast. While we look at the impacts it has on volume, we had to reduce our existing home sales forecast modestly as a result of rates backing up. We've also looked at slightly reducing our new home sales forecast. We've got home prices that are going to decelerate at a maybe faster rate than we had anticipated initially. Under the scenario of rates higher for longer and that 70 basis point increase, it basically shaves off growth and reduces acceleration in home prices.
Willy Walker: One of the components of rates being higher for longer is the Fed not getting inflation completely under control, getting to a target rate that they have had for quite some time of 2%, and then everything else would cascade off of that. And there's been plenty of conversation about the fact that they'll adjust and be closer to a 2.5% to a 3% inflation rate. And then you'll have short-term rates as well as the long bond play off of that. One of the big inputs there is whether tariffs come up and whether there are big inflationary pressures because of those tariffs. You all have rejected that. As I read your analysis, there was some good, which was the deregulatory efforts and the tax cuts which are mostly positive. But there are also some very significant headwinds as it relates to the unrest in the labor markets due to any deportations or anything from an immigration standpoint, and then also tariffs being negative. You all price in a 4% to 6% price increase if all of the Trump tariffs are enacted. Talk for a moment about that 4% to 6% price impact on housing. How broad is that as it relates to the inflation print? Because I would think that when you all have built-in 4% to 6% price increases on the cost of homes, that's taking into account a lot of the imports into that CPI. If that is the case as it relates to housing, you play that out more broadly and your take would be that there are going to be some significant inflationary pressures if these tariffs are enacted.
Ivy Zelman: Yeah. We asked our industry contacts that are building product manufacturers and distributors what they thought the impact would be across the various products that they produce. And that was the collective feedback of 4% to 6% as it relates to the actual home price. However, that doesn't necessarily mean that they'll be able to pass that along to the consumer. And what we've seen currently is a lot of pushback that's only now beginning for builders that are incentivizing to actually achieve absorption. They are starting to do a little pushback to their suppliers as it relates to building materials. The hope of the building product manufacturers and distributors is we'll be able to pass those price increases through to the builder customer and/or the remodel customer. But in reality, they might not be able to get the full offset. It may not be as inflationary as maybe some people fear if their customer being the builder and or contractors say, “We can't take that price increase because we can't pass it along to the consumer.” On the other hand, if the builder does take that price increase, it just means more upward pressure on price, which again extends the challenge of very stretched affordability. I think it's a loss either way. It's a loss for the builder if they are not able to pass it on to the consumer because they're going to see margin pressure, which they're already feeling because of their need to incentivize. But with that said, I do think that there is a risk that not only that headwind from higher inflation will create more inflation in the shelter component and the home furnishing component of CPI over a longer term period, but we also have the risk of labor, which is definitely more of a concern, in my opinion, than even the tariffs. Because even though many of the builder industry executives that we've spoken to about the risk of deportation feel as if they don't have those illegal citizens now or illegal people living and working for them, many of the trades that they use may not have staff. People are living here illegally, but they sub out so much of their work and it trickles down. I think there's a little bit too much complacency in the industry as it relates to the risk of deportation. As it relates to at least the construction industry, I think you could be more impacted than people are anticipating. We already have an aging workforce and there are a lot of parts of the food chain for the laborers of various trades that could be really impacted, especially at the more basic entry-type products like hanging wallboards or some of the things that don't have a lot of complexity to them.
Willy Walker: I want to get your read on lumber and concrete given the importance of Canada and Mexico as it relates to the lumber market as well as concrete. But I want to loop back to that after this question. What is your comment about labor? You also in this deck talk about how the public homebuilders have now surpassed the private homebuilders for the overall production of single-family homes. And that's a dramatic change. The data point you put in the research was, back in 2005, the independents were producing over 800,000 homes a year, and the publicly traded homebuilders were producing about 400,000. Now the public is over. The privates actually are well below and the public, I think, 480 now. The public has continued to gain share. Do the public homebuilders and their need to have legal labor put a little bit less pressure on that issue than it would have been if you were to go back to 2005 when you had so many independents who might not have the same standards from a labor hiring standpoint that the publicly traded companies do?
Ivy Zelman: Absolutely. I think back to GFC. I think the numbers were close to 3 to 4 out of seven were illegals. And when Trump came into office in 2016, there were a lot of raids at that time on job sites and a need for E-Verification. I feel the public builders, especially the very large trade partners, feel very much ready for any risk and they feel like their risk has been reduced substantially. To put it in perspective, you gave a lot of numbers around the absolute level of orders for builders or new home sales. The public account for about 54% of the new home market today. To give you a perspective, when I started covering the industry 30 years ago, that number was in the high single digits. They've dramatically consolidated the industry and there's more to come. And one of the benefits they have is that they have great trade partners that are larger companies. The risk is definitely less prevalent than it is for private builders that are really more dependent on smaller independent trade partners, many of which do have the same. But there's no question there's going to be that puzzle with so many different pieces. There are going to be areas that I think are more impacted than others. And as I said, the commodity type products on installing those products are typically where you see more people that are likely to be illegal.
Willy Walker: To go a little bit deeper on that, why is there so much consolidation going on? My tummy would tell me it's not that there are a lot of independents who are basically saying, “I'm for sale.” It's more that the economies of scale and the efficiencies and the ability to provide financing and all the other ancillary services that have been built into the single-family home building market are why the public is able to grow and take market share to the degree that they are. Am I missing something in the back-of-the-envelope analysis or is that essentially what's happening?
Ivy Zelman: That's essentially what's happening. I would add that the primary part of their benefit is their cost of capital is anywhere from 500 to 1,000 basis points lower than private companies. I do think that they're both growing organically and through acquisition to obtain the market share growth that they've had. They're doing it in both fashions. I would say that they also have, because of a lower cost of capital, the ability to pay more for land. By paying more for land, they can bring more communities to market. They're seeing the benefit of the absorptions at a higher pace, not to mention they can afford to do mortgage rate buy downs. And a lot of the private builders are really suffering, especially when they're being financed. And there are probably curtailments on how much they can really reduce margin. It's economies of scale, ancillary businesses, cost of capital, and they're really continuing that cycle of that capital flowing from their various businesses, allowing them to have a competitive advantage. It really is, I think, somewhat discouraging for the privates, but there are many regional privates or even local privates that do very well and have more of a philosophy of “I'm not going to play in the sandbox with the public. I'm going to find something that is niche-differentiated,” and they could do very well on their own. But there's no question my advice to the privates is if the public needs volume, they need growth. It'd be great to partner with them. Do an earn-out. But to me, it's inevitable that there's going to be more pressure on the privates than the public today. And let me clarify, when we look at some of the feedback, we ask all our private builders and public, do you feel that there's a risk of deportation to your operations? Many of them want to clarify that many of their various trades have people who might be here that are living as citizens, but they aren't US citizens. They're not here illegally, and they are here for a number of months. And then they go back to Mexico or whatever country they're from. They're not as concerned about deportation generally, but I probably am a little bit more cynical about it. For example, there was a raid in, I think, Bakersfield, California recently, and there were literally eight workers who showed up when there should have been dozens that showed up. And I know that one of the executives from one of the public builders showed up and said, “What's going on?” Many people don't come to work not because they're illegal, but maybe there’s someone in their household who might be illegal. They're concerned if they answer the door, then they're going to say, “You're here illegally.” They want to protect their family members. Even if they're legally here, their family members are not. And that has a ripple effect that's impacting their ability or desire to show up to work.
Willy Walker: Talking about rate by-downs by the public and that being an important component, one of the data points that I was struck by in this research report was that the average mortgage spread on a single-family mortgage sits at 230 basis points today. That's down from 300 basis points last year. But the average history has been 165 to 175 basis points. Why is the spread on single-family so wide today, given what is, in the commercial space and in the corporate bond space, almost historically tight spreads?
Ivy Zelman: No, there have been several opinions as to why the spreads got as high as 300, one of which is that the incremental buyers of mortgage-backed securities generally started to decline by the Fed and by banks. The Fed was more run-off in terms of MBS and banks were pulled back by their capital requirements and weren't buying as much money. That's one of the biggest reasons. The second was a risk of delinquency if the economy was at one point going into a hard landing and therefore the MBS investors were looking for a higher rate of return. Then as we were seeing rates rallying, there was prepayment risk. Prepayments happen as rates come down and there are people that are refinancing out, which also hurts the MBS returns. Those are some of the major potential reasons why spreads have been so wide, relative to historic norms. And we've seen the spreads actually compress along with the yield curve inverting and normalizing. We expect spreads to continue to compress, which would be favorable for mortgage rates, better than maybe the forward yield curve is implying. And what's been really, I think, very favorable is the resiliency of demand even with mortgage rates hovering near 7%. I do believe that the housing market will continue to see strong demand despite mortgage rates at 7%. And that has been a surprise to me. But predominately because of the job market being as strong as it is and also the lack of available supply, demand is still allowing for decent absorption growth. But I don't think that builders are going to have the pricing power that they've had historically. And I think they realize that that's why they continue to provide those incentives, predominately mortgage rate buy downs.
Willy Walker: What about the release on the lock-in effect? Your data says that about 75% of American homeowners who have a mortgage on their home have a rate below 5%. We've been talking here about your projection on the forward curve that's saying you're going to have 6.5% to 7% rates on single family. That's got a long way to go to get down to something where someone who has a 5% or less mortgage is willing to give up that cheap cost of financing to go and potentially buy a new home and sell their existing home. How firm is that lock-in idea in the sense that you see people who just sit there and say, “That is such a great financial asset that I'll put lots of home repairs on my home. I'll stick with this for a longer period of time.” I think it's been a relatively short period of time since all those new mortgages were put on in 2021 and the beginning of 2022. There hasn't been that much. But do you see that easing up at all as it relates to existing home sales coming onto the market? Or do you think that the lock-in effect really does put massive downward pressure on existing home sales for the foreseeable future?
Ivy Zelman: I think that we're going to see that the lock-in impact will keep existing turnover well below historic trends. Now we are seeing through the end of the year, inventories nationally were up 15% to 20%, which actually is still very low relative to any stored period and would put us still below nationally where we were pre-COVID when pretty much the market went nuts post-COVID. During COVID-19, I would say that when you look at the lock-in effect, what starts to happen is some people will keep the home, move, but rent it out. They don't want to lose the asset because it's a cheap cost of capital. And that might be an opportunity for them to retain the asset to get home appreciation and longer term. Alternatively, if they're moving in, let's say there's an arbitrage where they're moving from New York to, let's say, a more affordable market or east to west or Midwest to Southwest. A lot of that arbitrage might allow for them to overcome the lock-in effect. But today, by seeing inventories rising in MSAs in Florida, for example, where we've seen inventories rise the most, up north of 50%, 60%, or 70%, a lot of those people are saying, “You know what? I don't need to have a home here, that my cost of capital is now much higher to maintain the house; insurance is much higher.” And they're looking at the impact overall, not just the actual mortgage rate, but the other attributes of being a homeowner. Definitely, property taxes and homeowners insurance are, I think, causing many people to rethink homeownership in certain parts of the country. We are seeing a big divergence between markets that have more inventory rising than markets that are still constrained. You're seeing, for example, in my hometown of Cleveland, home prices are up 8% through ’24, whereas there are markets in Florida where home prices are marginally up or even down. We see a big divergence in markets where inventories are rising. But I don't think it's just about the lock-in effect. To answer your question more directly, we think existing turnover will remain in a modest growth period for ‘25 and ‘26. We're only looking to call it 5% to 9% respectively for the two years, but that's well below the historic trend line. And if you think about it from 8% of existing home sale closings over households, historically we would be over 4% or 4.5%. We're still going to be in the 3s and that's historic recessionary lows. The lock-in effect will keep demand or turnover low, but we are starting to see increases and I think that will continue. And people get to a point, Willy, where they say, “My kids have left, I'm an empty nester. This house is too big for me. I have a lot of equity. I'm going to downsize or I'm going to relocate to a warmer climate.” There's lots of mobility that happens. Realtors like to joke that in a recession, they'll always be the three D's to create transactions: death, divorce, and default. Even in an economy where we don't have the risk of default, you have discretionary buyers and sellers who start to get really tired of waiting. And I think we're seeing some of that now where they're in a situation where they have left a life inflection point where they need to move. There will be modest growth at best and still below the historic trend line.
Willy Walker: When I hear you talk about modest growth of existing home sales, I sit there and say, “It's just an incredible opportunity for the homebuilders to go meet the demand.” Yet your projection as it relates to new home sales is that you have 680,000 for 2024, 715,000 for 2025, and 750,000 for 2026. It seems there's such an opportunity here given the lock-in effect for the new home market to meet the demand. Even if there was a price issue where many people are priced out, they would adjust and go and need a lower price point to be able to capture the demand for single-family housing. Yet your numbers don't have that. It feels like there are constraints on both ends, on the existing supply as well as on the new supply. What am I missing there?
Ivy Zelman: First of all, I just want to compliment you. You know my numbers better than me. I don't know what you guys have been eating over there, but you know them and it's very impressive. But generally speaking, the growth that we're anticipating in the new home market is 5% per year in 2025 and ‘26. That may seem modest, but it's really what we have the ability to look at on the front line, which is land purchases. We're watching land purchases which then get developed and then actually translate into community accounts. When we look at the public builders’ community count, they're really only growing, call it 5% to 10% on average. They're opening new stores, as we like to call it. And part of that is because of the constraints of getting entitlements, getting permits, and the difficulties of the constraints that they have on the front end of their machine. Not to mention when they try to grow north of 10%, they start to run into issues. Labor becomes very challenging. They have supply chain issues. It's almost like the system breaks down when you get into double-digit territory on growth. I think they've been more prudent about how much they're going to deliver in new communities. And right now, frankly, they have a lot of spec on the ground. They were starting a lot more homes in ‘24 that they wound up getting in trouble with and they didn't move them as fast as they would have liked. They've actually dialed back on starts. And we only expect starts to grow for single-family production sales in the 3% range for 2025 and ‘26. It's really, I think, constraints that they have, coupled with their inability to move the spec that they have on the ground as fast as they would like. And that's absorptions that are still healthy, but maybe not as robust as they expected. I don't know if that helps clarify it, but I think they're being prudent. I think it makes sense not to push on the gas too hard, especially when you're sitting on specs that aren't moving as quickly as you'd like.
Willy Walker: Two things on that. One is, if you look back to your 2005 data as it relates to the independents versus the public, the big surge in home building back in 2005 was by the independents. I would put forth that you probably have a little bit more constraint right now given the size, scale, and number of people who are looking at the public as it relates to the risks that they take at this point in the cycle. Whereas maybe back in 2005, heading into the housing crisis, some of the independents were taking a lot of risk at that point trying to meet a forward demand curve that ended up falling apart on them. I'd love to hear whether you agree or disagree with that. And then I wanted to go to President Trump's executive order yesterday, and whether you think that actually brings any relief to the issues that you brought up. But on my quick back of the envelope, as it relates to 2005 and the risk taken by independents versus the public, do you think that there's a little bit more risk aversion given how the public is dominating the market today versus back pre-housing crisis?
Ivy Zelman: I would say that the public took a lot of risk during those boom years. The go-go days with rates were down and there was a lot more activity by both public and private. And over the timeframe that we're talking about, I don't know. They learned a lot through the downturn. I think we used to say, “They were nearly six feet under.” And by surviving the GFC, they definitely totally revamped how they go to the market, how much land they're willing to hold, and the size of the parcels that they are willing to hold. The public was very aggressive. The difference was that a lot of the privates didn't survive or they sold out to the public later on. And I think that's been part of the story. But today the public is much more prudent than they were in the 2000-2005 timeframe. There’s no question about it. And that's where I compliment them because they're not trying to step on the gas and just jam out more inventory, more supply, and what could obviously put the shareholders more at risk. They're definitely more focused on driving cash flow, keeping their leverage low, and really returning more to shareholders. And that's more important to them than top-line growth. It’s return on invested capital. Most of them are today employing that philosophy, and I think that it will pay dividends for them with assuming the higher multiples eventually. But today, they're definitely more prudent and they would argue that they weren't prudent. They would admit it during the GFC or pre-GFC.
Willy Walker: On the comments as it relates to regulation and the difficulty for home builders to actually get land and titles, start to build, and get building permits, that has added so much to the struggles of adding inventory. That gets us to a point where we don't have a shortage of housing in America and get some actual price relief. President Trump passed an executive order immediately when he got into office talking about the need to deliver emergency price relief to American homeowners. There were very few specifics, Ivy, in the executive order that he signed. But given that it was one of the first things that he signed, getting some type of relief into the housing markets is clearly top of mind for President Trump and his administration. Understanding that you’re not in the president's mind and that there weren't many specifics on there, what would you think they might actually do after having an executive order passed, where every 30 days his cabinet needs to come back to him and say, “What are you doing to make emergency price relief for American homeowners?”
Ivy Zelman: I think at the federal level, whether they're working with the governors and trying to figure out what type of tax credits they can provide local municipalities, enabling them to fast track more of the permitting and relaxed regulation, they have to work together. It has to start with the local municipality. And whether that starts at the state level with the governor, then working with the various MSAs, I think it's got to be some tax relief, because they can't change land prices. They do have federal land. During the campaign, President Trump talked about taking federally owned land and figuring out how to provide that supply to builders to build more affordable housing. Today, United States federally owned land is about 30% of the U.S. land, but it's very much west of the Mississippi. And in more rural parts of the country, we don't really anticipate the trades are going to be willing to go that far out, nor will homebuyers. But when you think about what would really accelerate more affordable housing, we have a lot of NIMBYism in the market. We have a lot of opposition that people still have perception-wise. It really has to start at the local level. And I don't know how the federal government does that without providing some type of incentive, maybe through more tax credits--- something that would really give those local municipalities more motivation to provide that supply and accelerate it.
Willy Walker: Think about President Trump's focus on tariffs and an executive order saying we want to bring down the cost of housing and at the same time putting up a proposal to put 25% tariffs on Canada and Mexico. This loops back to the question I wanted to ask earlier as it relates to so much of our lumber coming from Canada and so much of our concrete coming from Mexico. Those two things don't work together: putting up significant tariffs on Mexico and on Canada and at the same time putting emergency relief to the cost of housing in America. Talk for a moment as it relates to those costs of inputs being so important to the housing industry and how they would clearly get tagged if we had significant tariffs put in with Canada and Mexico.
Ivy Zelman: No, there's no question. It definitely doesn't match up with the goal to reduce the cost of living or provide more affordable housing. I think that for many of the builders we spoke to about the risk that tariffs would have on their ability to provide more shelter at affordable prices, their view would be that's really a big stick that Trump's using to negotiate with Canada and Mexico. They're a bit complacent that the full amounts would go through. Nevertheless, lumber is the largest component with respect to the cost of goods sold for builders. They really feel that, and I think concrete definitely as well. I think they are opposing overall measures that the president is trying to enforce and we will wait and see. It's too difficult to try to understand how to connect the dots there. It doesn't make any sense, especially in light of the idea that he's also contemplating thinking about an exit for the GSEs, which I don't have enough insight to provide. But we do think if the GSEs were to exit, that would only raise the cost of mortgages further.
Willy Walker: Yeah, it's interesting. And you and I could dive into this deeper. I think I'm going to stay on other topics, which are things that we actually know are going to happen versus things that we're projecting may or may not happen. But I do find the difference in the single-family mortgage versus the multifamily mortgage market interesting as it relates to the view on Fannie and Freddie's conservatorship versus being privatized, to the extent that in the single-family mortgage market, the majority of single-family mortgages are bought by Fannie and Freddie. And as long as it is a conforming mortgage, it's essentially an algorithm that's buying the mortgage, packaging it, and then selling it off. Whereas in the multifamily industry, so much of what we do to get a mortgage underwritten and bought by the agencies has a huge amount of human interaction. We're not only reliant upon the people of Fannie and Freddie but also the systems and the technology that they've invested in. I do get this sense that on the single-family side, there's a little bit of, “If it ain't broke, don't fix it.” Whereas on the multifamily side, it's saying, “The market is evolving.” The originators on the multifamily side are investing in systems and processes to try and speed things up. And then it gets into the secondary market where, for all great intentions and a lot of investment, it might not be keeping up. And as a result of that, there seems to be a little bit of a different view on the potential privatization of Fannie and Freddie between the single-family world and the multifamily world. And we'll see how that plays out as the policy objective is put into place of either getting them back out of the federal government or keeping them in the federal government. And I would put one other piece out there, Ivy, which is this. I think that if it's done from a theoretical standpoint, Fannie and Freddie were never intended to be part of the federal government and they just ought to be out on their own. That's a reasonably lengthy, very nuanced process with a lot of input as it relates to what the footprint looks like. What are they going to do in the future, what's the guarantee, etc.? Whereas it is teed up as an offset to either additional tax cuts or the reinstating of the existing tax code. If it's used as an offset to that, the privatization of Fannie and Freddie takes on a completely different view to the extent that the administration will want to maximize revenues and maximize their IPO value. And that could actually change the entire calculus to the point where it’s like, let's not debate about an explicit or implicit government guarantee to get the maximum price. It needs to either be one really explicit guarantee or a very sturdy implicit guarantee. And that all the nuanced issues go out in the wash as they focus on the fact that we need to raise $200 billion from the privatization of Fannie and Freddie to offset the tax bill. And I think that's a very different debate than the “let's take a look at getting Fannie and Freddie out of the federal government.”
Ivy Zelman: Yeah, in theory, it sounds great. I'd love to get into the mechanics of that and how they're driving returns are going to be impacting LLPAs and some of the drivers of pricing mortgages. I'll be open to learning more. But as of right now, I'd say the jury's out and doesn't have enough devil in the details to give you really an opinion.
Willy Walker: Yeah, I do think one of the other things about it is it will be interesting to see how President Trump looks at this issue as well as you look at him talking about TikTok and about the value of TikTok, either continuing to operate in the United States. Where it's got a $1 trillion valuation on the firm or it can't continue to operate in the United States at zero. The president is talking about potentially the United States government getting some return, getting some equity in TikTok if he allows them to continue to operate in the United States. It's very evident that we now have a commander-in-chief who is also a negotiator-in-chief and how the United States government plays in some of these things. I think it's uncharted territory. And I think one of the things that is very important on this as it relates to if it is included in discussions on the tax bill, is all of the nuances that you and I know very well. Implicit/explicit guarantees, for instance, are issues that I think go out the window as they relate to “I'm going to raise X amount of money to offset tax cuts.” Tax cuts are very important. Raise the maximum amount of money out of the privatization of Fannie and Freddie to offset them. Go get it done. I hear you. The devil is going to be in the details. And we obviously have a new HUD secretary. We have a nominee to be the new director of FHFA. And what those two gentlemen and then Secretary of the Treasury Scott put in to be the chief champion of privatization of Fannie and Freddie---if that is the directive from the White House. And then also, does it go an administrative route or does it go a legislative route? And obviously, if it goes legislative, it's Tim Scott on banking and French Hill on financial services in the House. Who would be leading that charge versus an administrative action? That would be up to the Treasury Secretary of the Senate working with FHFA, very different paths.
Ivy Zelman: Yes, we'll have to see.
Willy Walker: Very much so. Ivy, looking back on housing in your projections, one of the things is new home sales up 5% a year for ‘25 and ‘26. We've talked about the lock-in effect, making it so that existing inventory doesn't come on the market. Yet you also have a projection that volumes for single-family home brokers are up 9% and 11% in 2025 and 2026. Where do you get that step up in volume if there's this big lock-in effect on existing inventory and you only have 5% growth on the new home inventory?
Ivy Zelman: It's really coming from the increasing inventory that we're seeing come to market. And that's been much more prevalent predominantly in the south and Southwest, where we're seeing inventories rising at a pretty fast clip. And I think that gives us more confidence that we'll see increasing volume in terms of the number of closings. And for the brokers, they're going to accelerate because they have higher home sale prices. Their calculation is the value of the home times the number of homes. Home prices are still moving higher in our forecast. That's how we get growth for both the existing home sale closings and the brokers. It's coming from more inventory coming to market.
Willy Walker: On the broker front and the financing front, Zelman has outperformed Compass, Rocket, and Zillow right now. It doesn't surprise me that those three firms have been very technologically oriented, if you will. They've been making big investments in technology. Is the outperform basically based on market positioning? Or does it also have embedded in that outperform that those three firms have been investing in technology potentially to a greater degree than many of their competitor firms?
Ivy Zelman: I think that is a common theme. Our analyst, Ryan McKeveny, who rates those things, is really looking for companies that can grow and have secular growth in a cyclical environment. These companies have demonstrated that they can gain a share even if the market is under pressure. A lot of it could be stemming, in our opinion, from the technological investments they've made, but also their market position and the strategies that they're implementing. And definitely, whether it be Rocket, who's the definite leader in technology in the mortgage industry, or Zillow providing an experience for their realtor clients and everyone else that's giving them more services, more opportunities to capture more business. In Compass’ case, they've really done an incredible job of technology and adding agents that have chosen them because of the technological advances that they offer them and the services they provide to their agents who are their clients. They really view their agents as a client. I think all three of them stand out to us because of their ability to grow in an environment that is cyclically under pressure.
Willy Walker: On the home builder front, Ivy, one of the things that still shocks me is you were extremely nice to introduce me to your friend Stuart Miller, who runs Lennar. When Stuart and I were talking, I was asking him about technological enhancements, improvements, and innovation in the single-family home building space. And Stuart said to me, “Look, we invest a lot in this, but there's no whiz-bang technology out there today that is going to sort of revolutionize the single-family manufacturing space.” We had Katerra in Modular as an area that got billions of dollars of investment in it, which basically fell on its face. And today it doesn't feel like there's any. Obviously, at the margin, there's always innovation as it relates to something that might be sourced better and something that might be manufactured better. But as far as a revolutionary technological shift in single-family home building, there really doesn't seem to be anything on the radar screen today. Is my conversation with Stuart, which was now almost a year ago, still relevant as it relates to that? Or are you seeing something out there as it relates to 3D-printed homes or manufactured homes that might be changing the industry over the next couple of years?
Ivy Zelman: Sadly, we don't today. I think that there are, as you mentioned, maybe smaller initiatives that are not going to change the industry on a day or on a dime. Manufactured housing is an industry that could provide homes pretty much within 30-day periods. Yet there are so many negative perceptions that need to be overcome and there are challenges for the industry. But that is an industry that provides homes that are available within a very quick cycle time as compared to single-family completions. With that said, I think there are little pockets here and there. I know, for example, that Lennar has a manufacturer in San Francisco that can build 1 or 2 houses a week that are priced at 1 million to 2 million. That's a very small initiative that they continue to work toward bringing more homes to market. But part of the challenge that I've spoken to many about, whether it be modular manufacturing, is that they have to invest in the facilities. The facilities only have so much radius logistically that they can travel. When you're investing in all these fixed plants, you're going to have to get a return on those. And the costs are really that they don't pencil. The numbers don't work today, according to the builders, and many of the builders are afraid to give up their trades and put all their eggs in one basket in fear that it won't work. And then they lose their trade partners. I think we're still where we were a year ago. When you spoke to Stewart, I didn't really see any significant initiatives. We'd love to see more buy-in for manufactured housing and more affordable homes. They're not as much more affordable than single families, but they are more affordable.
Willy Walker: It's interesting that you raise that point about manufacturing. From your data in 1998, there were 375,000 manufactured homes sold in the United States. That dropped down during the GFC to only 50,000. And even today it's only recovered back to 100,000 in 2024. Is there some obsolescence there, Ivy, that could say that there was this big surge in the 1990s of manufactured home communities, that those actual communities now are getting to a point where those manufactured homes need to be replaced? You actually might see an uptick in the production of manufactured housing, because clearly, the entitlement issue is a real bear. In that executive order that the president put out, you talked about federal lands. Maybe there is something that says, “You need to get local communities to just allow for the entitlement of land to be able to produce and build manufactured housing communities.” But I have a friend of mine here in Denver who's in the space and he said, “When you show up to a town hall meeting saying you want to put in a manufactured housing community, they think you're trying to put a superfund site in their community.” It's the most visceral reaction that the communities across America have to “manufactured housing.” And one of the other things is the lexicon has tried to change the manufactured housing for mobile home parks. And at the same time, everyone, at least in positions of power seemingly across the country, still views them as mobile home parks and doesn't want them in their backyard. But on the obsolescence issue, is there something here that there was this big surge in the 1990s of the manufacturing of manufactured housing and now here we are 20 to 30 years later? All of that might be getting obsolete and you actually need a renewal of that inventory?
Ivy Zelman: Yeah, I think definitely you can see growth as you need those renewals in those homes of age and need to be replaced. But keep in mind about the surge in the '90s, I followed the manufactured housing stocks. They were definitely benefiting from loose credit and that got them into a lot of trouble. The retailers were being financed with pretty much no stringent underwriting, and they had the ability to stock and hold inventory and then stuff the channel with inventory. The market basically blew up and it was really credit. That basically put an end to that growth and the normalization is now back south of 100,000, as you pointed out. We do see modest growth going forward. Fannie and Freddie have been working very closely to provide more clarity to underwriting that would allow for more of the manufactured homes to be delivered on-site to builder communities. In fact, I was in Knoxville, Tennessee, and we were in a community where there were manufactured homes side by side to site-built and you couldn't tell the difference. Some of that is in the architecture. But I think that negative perception was very difficult to overcome in that specific community until they actually saw the homes and realized, “Wow, these really do look the same.” But if a double-wide is coming down the road, no one wants a double-wide in their neighborhood. I don't know how they overcome that, but the industry is on a slow path back to growth and we're optimistic that there could be opportunities for the biggest players in the market, Champion and Cavco, to really deliver and be a part of the solution. We think it makes tremendous sense. But there's a lot to overcome. But certainly, I know there are a lot of initiatives that are working toward that that we feel could come to fruition, but very slowly, nothing dramatic.
Willy Walker: We've talked about the lock-in effect on the existing inventory. We've talked about good, but not extraordinary, growth on the new home manufacturing side. Then one would go to say, “Okay, that means that either SFR single-family rental or multifamily are going to explode because there's pent-up housing demand. You're not getting new existing inventory; you're not getting a big jump up in new inventory on the single-family side. That means SFR does really well or multifamily does really well.” But as you point out in your research report, first of all, a weak for-sale market does not necessarily correlate to a strong single-family rental market. You have rent growth on SFR 2% up in 2025 from 8% in ‘21 and ‘22. The bloom to some degree has come off that rose. And then you have relatively modest multifamily rent increases for 2025 of 2.2% or 2.4%. I guess, first of all, jump on either one of those as it relates to SFR or multi. But then my bigger question is, what gives? We know the demand drivers are out there, but we're not seeing dramatic growth in any one of the distinct food groups.
Ivy Zelman: Right. I think that really is about the price of the units of shelter. If we talk about there's a tremendous housing shortage, and we look at the number of households that are not being formed because young adults are living at home longer or they're staying in a roommate situation longer, and the numbers are significantly above the historic trend line in terms of those coupling up or living at home, I think that the problem is that none of the units of shelter that you spoke of are providing truly affordable homes. We look at homebuilders today that are sitting on spec inventory and can't move that inventory without substantially incentivizing. We have lease-ups that are challenging in multifamily and in SFR because of the price that they're asking. That tells you that this is a price problem. It's not a shelter problem. It's the actual units that are being delivered at the wrong price. If I told you today that one of the builders was going to build a $700 to $1000 a month product, whether it be multifamily or let's say townhome, whatever, that would sell. The problem is the price. If you talk to young adults today, my kids, my oldest is 24, just graduated college a year ago. And she says, “How can any of my friends afford to buy a home today or even pay the rent step they're being asked to rent without having a roommate?” I think that's where the real challenge lies. But today I ask the question, “If the shortage is as bad as everyone presumes it is, then why are we having pressure from lease up on rent prices and why are we having spec that isn't being sold without substantial discounting?” I think that tells me that we have an affordability problem across all of the asset classes that we offer as shelter. That's the big problem today.
Willy Walker: We've talked about public policy and what may or may not happen as it relates to tariffs, as it may deregulate. On President Trump's executive order on the housing front, we've talked a little bit about whether Fannie or Freddie get privatized or not and what that would end up with. As you think about the fires in California, Ivy, the massive destruction of homes, there are two issues that come into play. (1) Does that add further inflationary pressures as it relates to housing? (2) As it relates to building materials as we go into such a massive rebuild, does that create a scarcity of raw materials, which then pushes up the cost of housing? And then the final piece, which I think is on everyone's mind, is insurance. The insurance costs, both on the single-family side as well as on the multifamily side, continue to go up. Many people who are owners in either asset class are sitting there saying, “It's unsustainable. I can't continue to pay this type of insurance to insure the home that I live in or the building that I own and have developed.” Dive in anywhere across that perspective as it relates to the derivative effects of the fires in California and their impact on housing.
Ivy Zelman: I think having talked to many builders and suppliers in the market, the first was on the building material inflation. Many believe that it would be very local type businesses that would be impacted. It wouldn't likely be a national phenomenon because the speed of the rebuild is going to be very slow, especially in areas like the Palisades where the Palisades not only have a higher price point but are more likely custom and they'll be slow to be rebuilt one at a time. I don't think there's a massive production homebuilder that's going to come in and rebuild the Palisades. With that said, there will be a near-term benefit for the available inventory on the market. I know there was a single-family rental community that was in the same 60-mile vicinity that couldn't get a lease-up. And they have not only leased everything but doubled the price that they were asking. They're asking 30,000 a month and they're getting 60,000 a month. We're definitely seeing inflation, not only in single-family rental prices and multifamily, as well as home prices for sale. Everything's moving higher because families that are displaced are looking for shelter. And whether its hotels are at occupancy or we've got lease ups happening and home sales happening. I think there is a near-term benefit, but I don't think longer-term that it would be sustainable given that it's going to be a slow rebuild. And I think that eventually, we'll start to see that moderation. I do think you bring up insurance. To me, insurance is one of the biggest concerns for housing overall, not only because of the cost of insurance but the ability to get insurance. There are many people in Newport Beach, I'm friends with in Orange County. They're not being renewed and are looking at how they’re going to obtain insurance. When you start to look at like the fair plan, which is what the state offers, if you can't receive insurance they'll only pay out to 3 million. Many homes are well above 3 million in Southern California or throughout California. You start to look at what your alternatives are. And being self-insured means no insurance is really not a great option, nor can it be an option if you have a mortgage. I think there are more people who are reconsidering whether they want to stay in areas that are really at risk, whether it be fires or floods. And that is going to cause some outbound migration. We're already hearing that from some of the markets that are adjacent, whether it be Phoenix and Vegas, that are seeing stronger activity right now as people are looking for shelter. And I think also Southern Cal outside of the Newport Beach, Orange County area is definitely seeing benefits from displaced families. But I don't believe that we'll have anything that this fire will result in that will be sustainable in absorption and price inflation as we might have a longer-term risk that home prices could be pressured as people start to rethink if they want to be in those markets that are at risk. I had a friend who emailed me and said, “What do you think I should do? I was not in the evacuation area, but I was near it. Do you think I should sell? I've had it here. I'm tired.” The politics, the issues. I think you'll see more migration out of California. But I also think in areas where insurance premiums have moved up substantially, like in South Florida, similarly, that's why inventories probably have at least some part of a reason they've risen so much in South Florida. There are more people who are rethinking whether they want to be in a market where they have a home that's at risk of being negatively impacted by a hurricane. The insurance industry is in total turmoil. Many of the commissioners, like in California, wouldn't allow insurers to raise their premiums. Now they are allowing them to raise premiums. I think this will change things. I think you mentioned the administration, and Trump's directive to reduce the cost of housing. One thing that Trump is going to do that will help is not require the type of energy codes that were being implemented that were costing on average five-plus thousand dollars a home. That will help on the margin. Whether in California right now, they'll relax some of their regulatory hurdles for permitting like CEQA, which now the governor said they will temporarily help. But on the margin, it's tough to say today. But I do think homebuilders will eventually play a role in rebuilding the area, but not necessarily right in Palisades. Someone who lost a $5-$10 million home may not want to buy a normal million-dollar home. But the people that were in the neighboring areas that were impacted beside Palisades might be the ones that would go to look for a production builder that we cover. One of them for sure will be a beneficiary or the higher end. Toll Brothers or Shea Homes will be beneficiaries, I think, of the displaced families that want to stay in California that will be looking.
Willy Walker: You mentioned the cost of housing. I remember coming out of the GFC, there was a lot of talk about micro units. There were a lot of multifamily developers that were talking about building micro units. Micro units had their day in the concept phase, but they really don't have their day as it relates to building them and having them absorbed. As you talk about the cost of housing where the building market is today, do you think a micro-unit might have a run here? Then as I hear you talk about the cost of insurance and people who live in Newport Beach who can't get insurance on their home, do you think that there might be a move toward a new and distinct multifamily housing that says to somebody, “You can live as if you're in a single-family home, but in a multifamily setup, because it's built of concrete, the insurance is on the owner of the building, not on you.” And that they try to move it to a point where you can, to some degree, replicate a single-family feel in a multifamily property. That rarely worked. You look at condos that have gone out and been built in South Florida and in LA, and they just haven't done that well as it relates to attracting the person who can both afford and wants to have a single-family detached home. But as I sit there and think about these people who are building these multimillion-dollar homes and are either having to go to the Fair Plan to get only $2 to $3 million of coverage or they're flying naked and they have their self-insuring, I would think that at a certain point, the losses, the stories of someone who is out of a total loss in Palisades, and very sorry to the person who does have a total loss in the Palisade, they all of a sudden say, “I can't keep going down this. I do want to live in California. I do want to live in Arizona. I do want to live in South Florida. But a multifamily kind of bunker type living format is better than the single-family where I can't get insurance.” Am I stretching that too far? Could that actually be where the markets would move?
Ivy Zelman: The product that you're talking about that would need to be developed and built by a multifamily operator today may not pencil for them. It may not be economical. I wouldn't rule it out. I think that if someone were to take that risk today, you'd be looking at class A+++. Someone who's looking willing and they'd have to be much larger units, as we know, three bedroom+ are very negligible as a part of the offering. I think it would take someone who's really more risk-oriented to try to develop something that might suit them. Alternatively, what I think is important to note is if you look at the insurance industry and think about how they view new homes versus existing homes, there's been evidence that new homes hold up better in hurricanes and fires. In fact, we've read that in the Palisades, there were homes that were recently built in the last few years that were not burned down and were still standing. I think Ron DeSantis has done work that I know he shared with Lennar that showed that the brand-new homes within hurricane areas were able to withstand those hurricanes versus the existing older stock. Recognizing I’m putting my neck out there, is it possible over the long term that new homes will be attracting more favorable insurance, and be better priced? Existing homes will remain under pressure because the insurers will be unwilling to insure them at much higher premiums, which if that's the case, then existing home prices might come under more pressure versus a new home market that would not only deserve the premium but would obviously be able to offer maybe more attractive pricing if their buyers are paying less in insurance, thinking through that. That to me is a more likely outcome than a single-family homeowner going to a multifamily that today doesn't really exist. And would it be in size, probably not. Now, multifamily will benefit in the near term. Talking to some of our partners, and our operators, they are seeing a pickup in demand in some of those ancillary markets that were in the vicinity. But will it be sustained is a big question and I likely think it won't. We'll see.
Willy Walker: Yeah, I could keep on going. Fortunately, you and I work together. I actually get to continue the conversation with you. But we are out of our hour. I guess, Ivy, overall, I look at the update and it's in a healthy environment but it's obviously got headwinds to it. If there's a silver bullet, if you're sitting in the White House and saying, “If you really want to do something to get the type of new home development in America, you want to release the kindred spirits inside of the housing market, you ought to focus on this.” What's that one thing? Is it the cost of mortgages as it relates to where interest rates are? Is it the regulation at the local level? Is it giving up on the tariff push? You're sitting at the resolute desk with the president saying, “Mr. President, with great respect to all the policy initiatives you have right now, if you really want to get housing going, this is where you ought to focus your team.” What would you say to him?
Ivy Zelman: Look at impact fees. Impact fees are, at the local level, costs that builders have to incur that are downstream from the local costs of a market. Impact fees would include such things as fire departments, police forces, and schools. Because they're building new communities, they basically have to pay all the fees associated with having a community around it developed. And in California, they represent as much as 15%+ of a home price. And they, on average, are 5%+ of a home price. I think that really to reduce impact fees and also the way the lines of FHFA are drawn today. It's very difficult to understand how you can price where FHA is limited at the same price in Corona as you would in Victorville, California. I think that the FHA limits need to be redrawn to look at it much more micro than the general inland empire and say, “This is the limit for FHA because pricing in Corona is very different in the more inland part.” Those would be the two areas that I think would make a difference. And probably those costs are being pushed to developers could be redirected elsewhere or picked up by the local governments.
Willy Walker: You could have quizzed me for your top 20 responses and I wouldn't have come up with either of those. What I find to be really interesting about those ideas is that those two things are very doable. If you'd said to me, “Get interest rates down.” Obviously, there are a million component parts that go into getting the cost of capital down and getting interest rates down to something where you unlock the existing home market, for instance. The idea is that those two things could have such a big impact. I'm hopeful this little clip gets out, gets to Scott Turner at HUD, who's coming in as the new HUD secretary, and other people to actually focus on those specific issues.
Ivy Zelman: Certainly wrote a lot about it. We can send it to Scott or anyone else. But I think that would really move the needle. But thanks for having me, Willy. I really appreciate the opportunity.
Willy Walker: As always, a fantastic discussion. Thank you, Ivy. Thanks for joining us today. Have a great week and we'll see you again next week.
Ivy Zelman: Take care.
Willy Walker: Bye.
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