Willy Walker:
Good afternoon and welcome to another Walker Webcast. It's my great pleasure to have my friend, my colleague, the exceptional analyst, Ivy Zelman, join me today. Hi, Ivy.
Ivy Zelman:
Hi. Love it. Nice to be here again.
Willy Walker:
It's great to have you. Since I have you alone today, usually when we have Kris Mikkelsen and Aaron Appel joining us, I dive right into the questions. Since I have you alone today, I'm going to do a full bio on you because it's been a while since I've done that bio. Most people who listen to the Walker Webcast know you and know of your background, but I think it is worthwhile to run back through it today as we have a little bit more time for just a one-on-one conversation. Ivy, bear with me as I embarrass you a little bit on how extraordinary this background is.
Ivy Zelman is one of the most influential housing analysts in the United States and is currently executive vice president and co-founder of Zelman, a Walker & Dunlop company. She has spent more than 30 years analyzing housing, home building, mortgage finance, building products, demographics, and the broader residential real estate ecosystem. She began her career at Salomon Brothers in 1990, initially in investment banking before moving into equity research covering housing. She joined Credit Suisse First Boston in 1998, when those firms were still Credit Suisse First Boston, where she became managing director and one of Wall Street's highest-ranked housing analysts. She and her team ultimately earned 11 #1 institutional investor All-American research team rankings.
What made Ivy famous was her willingness to make big calls against the prevailing consensus. In 2005, she called the top of the U.S. housing market, becoming increasingly bearish even as much of Wall Street remained bullish. Her skepticism culminated in her well-known challenge to then Toll Brothers CEO during a 2006 earnings call. Then, after the financial crisis, she called the housing market bottom in 2012. Those two calls are central to her reputation as one of the industry's most independent and insightful analysts. In 2007, Ivy cofounded Zelman & Associates with Dennis McGill, building an independent research and investment banking firm focused exclusively on housing and related industries.
A distinctive feature of Zelman's approach is combining traditional financial analysis with proprietary surveys and direct intelligence from home builders, brokers, lenders, building products companies, and other industry participants. Walker & Dunlop acquired a controlling interest in Zelman in 2021, bringing the firm's housing research and investment banking capabilities into W&D.
Ivy earned a BS in accounting from George Mason University. She has repeatedly been named Barron's 100 Most Influential Women in the U.S. Finance, and has been inducted into the California Homebuilding Foundation's Hall of Fame. I haven't seen a clip of that one, Ivy, and has taught as an adjunct professor of finance at Case Western Reserve. She is also the author of the 2021 memoir, Gimme Shelter: Hard Calls + Soft Skills From A Wall Street Trailblazer, which combines her career story with lessons about leadership, conviction, relationships, and making difficult calls.
There's the bio, Ivy. I should dive back into so many components of that. But given the research report that you and your team just put out entitled A Decade Divided, I kind of wanted to jump into that as a headline because there's so much right now with where rates are, with where housing is, where inflation is, et cetera, that I kind of want to roll up our sleeves and dive into some of the data.
You and I have spoken in the past about a housing shortage in America. A Decade Divided seems to challenge that narrative. Are we undersupplied in housing?
Ivy Zelman:
Well, first again, thank you. I think my bio needs to be cut down. It's a little long.
Willy Walker:
I love it. Given you're a member of our team, I love talking about it.
Ivy Zelman:
I appreciate it. I'd say that our view is that the housing market is more balanced than what we hear from other trade associations and people that are in the housing ecosystem, and certainly can dig into why we believe it's balanced. And I think that I can elaborate, or you can ask me, and I'm happy to respond, but we think it's a balanced market.
Willy Walker:
If it's balanced, what are others missing? Because we continue, I mean, all you have to do is watch CNBC; everyone who goes on CNBC other than you now says, we've got a 3-4 million household shortage in America. And so what are they missing if we're in balance?
Ivy Zelman:
Well, I think it has a lot to do with what inputs you're assuming and where we are. For example, if we're looking at the future and looking at the inputs that drive the need for more supply, we really focus on household growth, and household growth is a derivative of population growth. They're not 100 % correlated, but they move directionally together. And we've been seeing a downward trajectory for both population and household growth for decades. But we're at a pivotal point in our history because we're now seeing, approaching 2030, we'll have more people that will die in this country than those that are born. And the only other variable that matters for population growth is immigration, which has pretty much come to a bit of a standstill, as we know with the current administration.
We look at what that means for household growth? Our view is that the current supply is meeting the level of household growth. Some economists are looking at more optimistically overall young adults living at home. We think that's a variable that may be more optimistically assumed on a go-forward basis. And the other variable that really makes a difference in any prediction or forecast is going to be vacancy rate. And so again, happy to dig further into there, but those are the things—we don't get to see other trade or associations, how they derive their narrative of a shortage, but that's what we believe would be the major differences.
Willy Walker:
Let's double-click on all three of those. Kokko, will you pull up the graph here and to those who are listening to this and not looking at it, this is a pretty dramatic graph that comes from A Decade Divided, which shows US births versus deaths and where we are from a population growth standpoint.
Ivy, talk through this slide for a moment as it relates to what this is showing, because it's just such a— the thing that struck me about it is it's not that long ago that this number was wildly positive, close to 2 million, and now we're down to almost flat.
Ivy Zelman:
Yes. Unfortunately, it's not a positive trajectory as we know, and it's quite troubling. I think it starts with the three components I mentioned: birth rates. Young women today are opting to have children later. Part of that is assumed because they're pursuing higher education. They're also dealing with uncertainties in the economy and affordability concerns, inflation. Many are opting to be one and done or not at all. And so the birth rates have been under pressure. A lot of it initially was coming from what was a good thing, young women that are teenagers that were getting pregnant. And that's a really big portion of what helped to put a cap on population growth was that we had young women that were unfortunately having children too young, and that really was arrested. That's a positive, but overall birth rates are below replacement right now for this country. In fact, we are, what I would say, much better off than most other developed nations. We're higher in terms of our birth rates, but we're still below replacement, as are the other developed countries. That's the birth rate story.
The other component: immigration. We know with this administration, whether self deportation, legal immigration becoming more challenging, as well as illegals and deportation, all of that has resulted in less than half a million people entering this country annually. And we believe that even with the new administration, let's assume the Democrats take the White House, they're not going to open the borders again. And we might see some modest improvement in legal immigration, but we don't think the illegal portion would really change very much. That was the lever that could really help the population.
And then we have respectfully death rates, that while death rates are actually improving, as we have wellness and longevity improvements, the absolute level of deaths has been rising. And annually, we will continue to see, call it, 50,000 incremental vacancies coming from deaths and politely aging out. You add up all three, that results in a pretty steep decline in what would be population growth.
Why we called it A Decade Divided is that the first half of the decade actually had very strong household growth, which was really a function of, we believe these young adults leaving home at a pretty significant level, because there was not only a desire for distance and space, but there was a lot of stimulus dollars and interest rates were very, very low, as we know. As a result of that, there's another chart that we've included that we can look at, but we saw a big reversal of young adults living at home. And that definitely created this pop in overall, the first past of the decade, we had about 7% household formation, which was comparatively, even the decade 2010 to 2020 was only 8.7 in total. But for this decade, even with the second half slowing to 3%, 4% will be over 11% in terms of household growth. But the minute rates went up in ‘22, Willy, young adults leaving households reversed and went back to close to levels that were pretty onerous and at peak levels. And we're assuming it has improved modestly, but not much. And that could be a big variable where other economists are more optimistic about the future and assuming we have young adults leaving home.
Willy Walker:
Let's jump in on a number of the points you made there. First of all, as it relates to the death rate, you did talk about it accelerating, even though we have longevity. Is that acceleration due to the pandemic and that then burns off, if you will, as we get those numbers out over time? In other words, our birth rates in the first half of the decade, death rates accelerated because of the pandemic and therefore in the second half that comes down significantly with the aging population that then mutes that?
Ivy Zelman:
Well, the death rate itself, because it's improving, I think it has a lot to do with longevity and people living longer. The impact from COVID absolutely had an impact on deaths that did spike them in the first half, first three years of the decade. But then we've normalized that. But even with that normalizing, death rates are improving. However, again, absolute deaths are still going to rise by 50,000 per annum. We're talking about 2+ million per annum dying or aging out.
Willy Walker:
Which will then put what you said was 50,000 housing units sort of back on the market because of that net downturn in population?
Ivy Zelman:
Incrementally, because of estate sales, you'll start to incrementally add 50,000 plus per annum that would result in more vacant units on the market.
Willy Walker:
The second thing you said there was that, up to 2022, what you pinned it to was interest rates moving precipitously after 2022. Do you think that this is young adults living at home and then moving out to start their own homes? And you said that it was moving in a very positive trajectory until 22 when rates started to go up. Do you pin it all on rates and affordability or is it more lifestyle? And we did just at that point come out of a pandemic where during the pandemic, there was clearly a move for, I need my own space. I don't want to be around my older parents who might be getting COVID and all that stuff.
Is it an economic issue or is it a more social norm/societal issue?
Ivy Zelman:
I think a little of both. I mean, I think that what happened post ‘22 is we know that inflation kind of ran rapidly. And when you think about people that are living, young adults living at home, it's assumingly trying to save so they can start their own household, whether they're renting an apartment or buying a home with help. I think there's also a part that inflation keeps people unfortunately unable to generate enough savings to do so even with living at home. But I also think that affordability being extremely stretched has a lot to do with it and still does. But from a secular perspective, it's nice to live at your parents' house now. We've made it so nice for them. They don't want to leave.
Willy Walker:
I know. I was going to say your three daughters and my three sons might be retreating to our homes these days even though they're bounding out on their own. But our kids are about the same age. And I was actually thinking about that while reading the report. I was sort of like, yeah, one of the things that's happened as America has gotten wealthier and more people own single-family homes that have an extra bedroom, have two extra bedrooms. It used to be 50 years ago that it was cramped. And the moment that you had the opportunity to get out on your own, you jumped out because it wasn't that comfortable living at home. In today's world, A, it's quite comfortable. B, it's obviously affordable. And C, in some instances, remote work has allowed younger adults to be able to basically work from wherever. And therefore, they're not forced to rent that apartment in a distinct city from where their parents are because they can work remotely over Zoom.
Ivy Zelman:
Absolutely. And I think you have to recognize that we're really following Europe's lead. Europe has multi-generational living. And a lot of that is due to the lack of availability of product coupled with how expensive it is. Even though the affordability here is stretched, it's even more stretched in Europe. We've been seeing more multi-generational living.
In fact, home builders are offering products that accommodate multi-generational living. That's a growing part of the housing market. Not surprised, but I think the negative stigma of living in your parents' basement is gone. When I was 18, I was out. I'm sure you were as well. You couldn't wait to get out. And now, is it because our Gen Z and millennials, are they a little entitled? Are we to blame? I blame myself. Helicopter parents, we want our kids to have what we didn't have. We make it really nice for them. And I don't think, therefore, it's just about affordability.
Willy Walker:
There's a, first of all, Europe has plenty of things that we ought to both respect and strive for. There are certain things that we might not want to do. I'm not sure that that is a piece of what we ought to go for. But there was a, you may have seen it, there was a great 60 Minutes piece. It's got to be a decade ago now. But a great 60 Minutes piece on how Italian men, that the culture in Italy is that single Italian men still live at home until they're 40 and 50 years old. And they did this great piece about the fact that one after the other, young, single Italian men would just hang out with mom and dad. And that was the way that you got yourself both on from a career standpoint, and then found your ultimate mate. But it was a fun piece and seemed at that time, totally antithetical, if you will, to the way that Americans grew up and lived. And it was like this, well, it was a 60 Minutes piece, which obviously made it noteworthy, sort of, wow, look at the way that they live versus the way that we live. And as you're pointing out, we're more and more looking like that.
Ivy Zelman:
Going towards that, for sure.
Willy Walker:
Kokko, let's pull up the slide that they have in A Decade Divided as it relates to this number. Because Ivy, on this one, this slide to those that are listening is just the percentage of 20 to 39-year-olds in America living at home. And as this slide shows, it has increased from 15% back in 1980 up to 22.4% in 2026.
And Ivy, talk for a moment about that, the note on this as it relates to every 100 basis point change.
Ivy Zelman:
If you think about the 2020 timeframe, when we were at peak at 23.7, it looked like that was only going to be sustained. However, as rates dropped again, COVID came to fruition, we saw a reversal of that. And when we think about that 21.7, is that likely to keep going lower? We've seen a reversal already reflected in the ‘25 ACS data showing that people are now, more people are staying at home. But what we wanted to show you is that the sensitivity is for every 100 basis point change, plus or minus, that results in the annualized change of about half a million households.
Very sensitive to what it means for, we're going to add incrementally 500,000 new households, and therefore we need incrementally more 500,000 of incremental supply. That's why it's a very important variable when you're forecasting if we're either in a deficit or if we're balanced or oversupplied.
Willy Walker:
And that's a super important one, if you think about it in the context of what you said on the aging boomer population and the death rate adding in 50,000 units a year versus if you got a one percentage point or 100 basis point change in that 20 to 40 cohort living at home, you're going to have 500,000 units of demand coming into the market or lack of absorption if they stay at home.
Ivy Zelman:
Absolutely. And frankly, given the state of the current economy with uncertainty around interest rates and continuing to move higher today, 10 years was at 4.8. It's not looking great for any improvement on the horizon, unfortunately. But I was going to say the bigger picture. I think that when you factor in what the death rate or just incremental deaths mean, I think today the average longevity men and women call it 80 years old. We also have that aging boomer and aging Gen X that will benefit the housing market, we think, so that not everybody will just die and be gone. You're also seeing benefits like, for example, Pulte Homes has now introduced a product called Explorer product where there are people buying a call retirement home, but in their 40s and it's designed to really accommodate an active family still raising children, but eventually that will be their retirement home.
There are positives within the ecosystem that come from aging. And I just wanted to make sure we address that because it's not all, they're not all dying, but there are benefits as we age of which parts of the housing equation are doing better.
Willy Walker:
And if you think about it, you just commented on interest rates and interest rates, obviously hugely important to the overall housing ecosystem. And we can dive into that in a moment. But it's really jobs I would think that is going to drive that cohort of 20 to 39 year olds out of home and into forming their own household.
And we're at, I think, the number is 4.3%, 4.4% unemployment in America today. When we saw unemployment come down well into the threes, Ivy, if you look at that graph, as it relates to the number of people, 20 to 39 living at home, that didn't materially move that trend. In other words, people were still staying at home, even as you picked up almost a hundred basis points in the unemployment rate to the positive of getting down towards 3% unemployment. What's the driver there that gets these people moving out? Is there, I mean, I sit there and look at it and say, okay, well, unemployment rate goes from 4.3, 4.4 down to 4.375. How much does that then bring that living at home number down to spur that 500 to a million needed new homes from that migration effect, if you will? Is it all related to employment? I mean, this is back to the question I asked previously: is this habits and socio sort of the way that people are living or is this more economic?
Ivy Zelman:
Well, I think based on the chart that you had up there, if you look at multi decades, we're showing the decade average, not a point in time. It's at the end of the decade. And each of the decades has moved with the exception of 2000, where it moved down. We've been on a secular trend moving higher and I'll make everyone laugh. My daughter who's 26 and she'll kill me, but I'm going to tell it. I couldn't get her to move out. I bought a car and the car's going to be here soon. And I told her, I said, listen, our cars are not going to fit in the garage side by side. You're welcome to stay, but the Cleveland winters are pretty hard. You'll be out in the driveway and I'll be in the garage. And guess what? She moved out in June because of a real kick in the butt. And she helped the rental market in Cleveland, Ohio, which is quite affordable relative, but as a roommate, so it was a catalyst. I recommend it if you have something similar, but I do think that young adults, you mentioned remote work, more people can work from home. That could also be the variable where employment, even improving, doesn't necessarily drive people to leave as quickly if they're not required to move to a different city. I think there are a lot of variables, but you know, I, back in the 90s, Forbes did a, it was either Fortune or Forbes, the disease of affluenza and more families that are affluent or want to be affluent want to create households that are very comfortable for their adult children. Nobody's really pushing either. I think that has something to do with it.
I think that parents are more accommodating for kids living at home longer. And it might be that they finally leave when they get married and they're getting married later in life. My daughter's boyfriend's 27 and he bought a house. I was like, Oh my God, the first time buyer markets, the age is 40 now. It was very impressive that he bought his house rate. It's a very different dynamic in today's society than it was when you and I were growing up.
Willy Walker:
And is there anything in all that—we hear the numbers as it relates to the wealth transfer that's going to come up from the baby boomer generation to the Zs and the Ys and the Xs and everybody else. And the numbers are astounding when you look at them on the aggregate. I just had somebody who's in the wealth management space say to me over the next 20 years, there's going to be $110 trillion transferred from one generation to the next.
And I'm like, I can't even get my head around $110 trillion. And let's just say, it's only 60 rather than 110. It's still an enormous wealth transfer that's going to happen here. In the interim, does that have some impact on the ability for people to go and put the down payment on a new home? Are we seeing the baby boomers be more generous with their kids to underwrite the down payment and help them actually get into their own space?
I mean, you just talked about the incentive you put in place. My eldest son just bought a house in Boulder, Colorado. And I was absolutely shocked at how little he could buy for the amount of money he spent. And I was also shocked, I kind of had some guilt in the sense that we went to look at the house and asked the broker what it was going to take. And the broker said, it's going to take a 5% premium over the ask. And if you can close all cash with no financing contingency, you can win this. And I sat there at the open house looking at these young couples who were coming in and this was going to be their starter home for their life. And I came with the ability to back up my son to be able to do 5% premium, all cash, and we ended up winning it. And I sort of, at the end of the day, was sort of like, wow, that gives you a sense of the frustration that these people have of A, on a per square foot basis, it was almost, it was $890 a square foot for a complete starter home. 1954 built a brick construction home in a cul-de-sac where every home was exactly the same kind of cookie cutter back from 1954. It's a great fixer upper over time. And I'm quite certain that my son will make money on it. But it just sort of, I was sitting there saying, wow, if you're somebody who thought that this was the one you're going to get into, it was a significant down payment to get the house. And all of a sudden, we walk and get it basically for all cash because we can do that.
My question here is, are more people of yours and my generation helping kids? And can we bank on that a little bit over the next five to 10 years that might actually spur some of that increased demand?
Ivy Zelman:
Sure. And we believe that the wealth transfer is happening to some extent, maybe not entirely. When you have obviously parents passing or grandparents passing, you get a bigger portion of that wealth transfer. But what we see today is an increase in cash purchases, roughly around 30% right now. We're kind of more in the mid to low 20% range historically, but according to NAR. I do think cash sales are indicative or supportive that parents are helping like yourself. Maybe they're taking out a loan against their parents or getting a mortgage later, but my ex-brother-in-law bought all three of his kids' homes. And I know many family members and friends that are doing the same for their kids. You have definitely a benefit to the market. If you look at what people own and what generates their wealth, their homes are their largest asset. And so they are waiting until they are likely to pass that home along, but then we have issues with capital gain taxes. And so that's going to be an issue, especially if these homes are larger and maybe older and need repair and remodel. But I do think that the wealth transfer is happening. According to FHA, roughly 20% of the loans for the first time buyers are actually getting down payment assistance. And I think that's an increasing number. And even in conventional, we see the same thing. We don't have the data to really even aggregate estate sales or know specifically when they're coming to market and where they're being transferred. But we believe that more and more adults are helping their children today in various ways.
Willy Walker:
You talked about where interest rates are and you talked right there about the home being the number one asset in most families’ financial picture. And as you and I have discussed in the past, many of those homeowners locked in historically low mortgage rates back in 2020 and 2021 that set them up to continue to accumulate equity in the home because they've got such a low mortgage rate.
There seems to be, you mentioned a 4.80% 10-year treasury, which is having a real impact on both single-family as well as the commercial and multifamily industries right now. But if inflation is here, sort of to stay Ivy, Kevin Warsh was in Wyoming last week, in Jackson Hole, and it's pretty clear that he was like, we got to get this thing under control. And so if he's going to raise here, we're dealing with inflationary pressures for quite some time. Are people missing the value of real estate as it relates to an inflation hedge, as they look at nominal returns on real estate rather than looking at it from an inflation adjusted basis?
Ivy Zelman:
I think your entry-level buyer doesn't look at inflation adjusted. I think when we get into where the market is the strongest 10 million and higher is hot right now. And if you go into Southern California markets, brokers that are selling luxury homes above 10 million can't sell enough.
It's very, very strong. And most of the country, I'd say that you're seeing that strength, whereas if you go down below 10 million, it gets more challenging depending on where you are. But the most challenging part is the entry-level buyer who probably is not sophisticated enough to appreciate the inflation hedge where that luxury buyer is.
And I think that today, you're right. Inflation is obviously a concern going forward. And I think one of the things that we talked about is that we're hosting our housing summit in a few weeks in Boston, and prepping for the conference, talking to some brokers yesterday. What I'm hearing, it's not so much that they can't afford it. They're looking at the rate today with a lot of uncertainty. And maybe they, what they called it, marry the house, date the rate, date the rate, marry the house. That was a good idea because even though it's a little stretched for me, in two years, I'll refi. And therefore, there was the behavior of it was okay to buy because I can refi. Now, they're not clear on what the rates are going to be in two years from now.
The buyer behavior, at least within the resale market, is uncertainty that has really put a lid on overall demand. And we've seen a cooling throughout the summer as we've seen more of the risk that inflation is still not only a problem, but is re-accelerating. But when we look at the stock factor, and you look at where we were in 2022, in December of 22, 88% of homeowners that had a mortgage were locked in below five, and 50% were locked in below three and a half.
Fast forward to today, in May of ‘26, we're now at 68% below five and 39% below three and a half. And by the end of ‘27, we'll be at 59% below five and 33% below three and a half. And I give you those numbers because I do think the stock factor diminishes people's willingness to give up that low rate. But as it gets better, slowly, we call it this grind, life changes. And the three Ds that brokers like to talk about are the three Ds of real estate: death, divorce, and default. Those are the three Ds that will drive a transaction no matter what the economy is doing. And then if you add the fourth D, which is discretionary buying, I think the fact that they're stuck mitigates discretionary selling, where I want a new house. No, I'm not going to give up this low rate. But if I'm getting divorced, you're going to get a new house. You're going to go buy another house because you're not going to live together. Some people actually still live together because affordability is so constrained anecdotally. But I think those are some of the dynamics that are in the market today. And I definitely think that in the resale market earlier in the spring, we saw green shoots as we approached a 6% mortgage rate. And we did see incremental demand because people always say to me, what's the magic rate that's going to make the market healthier? And what we see, it's more about the rate of change. And as rates were headed lower, people were getting more comfortable with the idea, okay, maybe it's not the lowest rate in the world, but I'm really missing the opportunity to buy a new home or buy a resale and fix it up. I think we did incrementally start to see improvement that is now sequentially and unfortunately decelerated.
Willy Walker:
Do you think that Bessent's move to buy at the long end of the curve and sell at the short end of the curve is going to have a material impact on rates in the market and potentially get the long end of the curve down?
Ivy Zelman:
Not smart enough to know the answer, but I think it spooks...
Willy Walker:
Oh, come on. Come on. I'm not going to let you say that. Come on.
Ivy Zelman:
My personal opinion is that the fact that Scott Bessent has to notify the markets that they're going to buy at the long end of the curve when there's a $40 trillion deficit didn't make me feel warm and fuzzy. And we saw that rates just bounced back higher after the initial announcement. I don't think he can control the long end. They don't have enough funding to do that. I know that Fannie and Freddie buying MBS helps; that's keeping the spreads down. And I think that they control mortgage rates more than they control the tenure. But I don't think that they can really control the long end as it relates to the amount of bonds that they're buying. It signals to the rest of the market, we'll sell into that. Go ahead, buy as much as you want, but we want out.
And I think that unfortunately had been the case that foreign sellers had been putting pressure on the bond market, but most of the buying and selling now is less foreign and more domestic.
Willy Walker:
But on that, you underscored 40 trillion of US debt today. The current administration is projected to add $10 trillion to the national debt in the four years that the Trump administration is in place. 10 trillion, 2.5 trillion a year. And the alternative is the Democrats, who haven't found a spending bill they dislike either. And so I guess the question here is, it feels like the bond market is trying to give us a wake-up call saying that this profligate spending is unsustainable. And yet the alternative used to be, okay, well, the Republicans are for lower taxes and lower spending. And now we have the Republicans of lower taxes and more spending. And we have the Democrats of higher taxes and more spending. It feels like no solution is going to actually address the core problem, which is that $40 trillion of outstanding debt is concerning the bond market as it relates to the US being able to actually pay those interest payments in the future and therefore going to need a higher coupon rate to accept that risk. And therefore that drives into the housing market, both single-family as well as multifamily on the financing cost, which has always been a core component of it. And therefore I mean, where's the relief, I guess, what's the, what's the off-ramp?
Ivy Zelman:
Well, you just saw the announcement that Social Security will run out by 2032. And maybe that's putting some pressure on Congress to contemplate doing something about it. That was like a recent article, maybe last week. And really what they should do is to raise the retirement age and figure out how to generate incremental funds that we need desperately. And until they do something that creates austerity, no one trusts this government. And so there's a lack of confidence in their ability to control spending, either side of the aisle. And I think that what they need to contemplate is raising the retirement age. We're living longer. We're working longer. We're both at an age, we'll probably work for the next 10 years. You and I are longer. And yet people are getting Social Security retirement at 65 or even earlier if they want to accelerate it. At least that's my thought, but I don't think that these legislators that we currently have want to risk getting fired by their constituents because the people that vote the most are the oldest, the elderly vote. They're the largest voters in the country. I don't know how else to solve or the challenges that we have, but do we get this administration to focus on spending reduction? I don't see that in the cards right now, not with this war going on.
Willy Walker:
If we're in balance from a housing standpoint, and housing is an important issue for whichever administration, whether it's the Trump administration now or whatever the next administration is going to be, housing has always been a core tenet of whether more people should own a home. Single-family homes are the place where people have a store of value. As you said previously, it's typically the largest component of wealth for families and for retirees.
And so if you were to look at the policies that are being put into place now, and we obviously just got the Road to Housing Act passed by Congress, unsigned by the president, but put into law, where would you direct U.S. policy as it relates to being supportive? Maybe not stimulative. Maybe you're saying we don't need more stimulus, but supportive of the U.S. housing market.
Ivy Zelman:
Well, let's just take a step back for a moment. One of the things that we've heard a lot about with respect to shortage or balanced or oversupplied is the vacancy rate in the country. We can come back to that. I just want to make sure we highlight that that's a very—
Willy Walker:
Let's just jump on that. Kokko, pull up the slide that shows the vacancy rate on multifamily versus single-family rental, because this will guide some of Ivy's comments. To those of you who are just listening and not seeing that, this is a slide that shows single-family and multifamily vacancy rates in America. And today, multifamily is at 8.3 per Zelman, and single-family rental is at 6.2. Anything else you want to point out on this slide, Ivy, before you go into your comments?
Ivy Zelman:
No, I think it's important to recognize that obviously vacancy levels fluctuate, but national vacancy rates are not reflective of what's happening per the differentiated pieces of shelter. Multifamily right now is oversupplied. We're seeing completions come down; starts have come down. We do expect that supply will get absorbed and get back into balance. Same thing with SFR. We had a lot more built for rent. And now that the Housing Act has been signed, or didn't get signed, but got put into law, we are seeing BFR come back a little bit.
I think generally we'll get there. The areas that are undersupplied within the ecosystem are really on the seasonal side. Second homes were bought up during COVID, and there's a lack of second home availability. And I think that could be a bright spot for builders and developers to contemplate. But I think the reason I really want to highlight that is if you make an assumption that we're at a 10% vacancy rate, then you could say, oh, well, their vacancy rate is going to be coming down, and therefore we're going to have improvement. It really matters what number you're using. And that's the variable that I think there are different opinions in different various firms. For example, CoStar is at 8%. Others are using multifamily at 10%. It matters what you're assuming, and therefore to forecast whether we're imbalanced or oversupplied makes a big difference.
Willy Walker:
You mentioned CoStar. I just had a random thought on this, but I saw it yesterday in a Bisnow article focusing on President Trump's 1,680 stock trades in 2026. And one of the stocks that they pointed out was CoStar. I just thought it was so funny that they're sitting there peering into that and trying to see what the President's trading on. I will withhold judgment on that.
If we're looking at that type of vacancy on the multifamily side, it feels like we've gone from sort of an index market in the sense that you could buy multifamily in 2012 to 2022 pretty much. And there was a really great macro backdrop to not enough supply, rates being low, a renter nation, if you will, more than a buyer nation. And you could kind of bet the index, and it did really, really well. It feels like we're now back into kind of a stock-pickers market, if you will, as it relates to multifamily and most particularly which markets are showing strength in green shoots and which markets are still lagging.
One of the big things that you have pointed out over the past couple of years, Ivy, was the strength in the urban gateway markets just because there was a lack of supply when the Sun Belt got overbuilt. And so the Sun Belt has been lagging while the urban gateways have actually held up pretty well. And we're now sort of at that flexion point, if you will, where some of the excess supply in the Sun Belt markets has been absorbed. And yet you still sort of have the same demographic and job trends in the urban gateway cities that you had ahead of time. If you're going to be a stock-picker, if you will, but instead of stocks, you're going to look at either regions or cities. Where's your view right now from a multi standpoint as it relates to where people ought to be making bets?
Ivy Zelman:
For multifamily. Well, I think that you're right. The lack of supply in areas like San Francisco is definitely the perfect example. When you don't have started there for more than five years, we now have rents up double digits there. And so I don't see that changing. I think where we have a deficit of starts, you're going to continue to see rents reaccelerate.
The Sun Belt has lagged. We just recently published our survey for July for multifamily operators, as well as in the June survey, we saw that things were decelerating. We had green shoots that were coming apparent in May and June to some extent on occupancy. But then in July, occupancy and rents decelerated more than seasonal when those are the two strongest months of the year, supposedly. A lot of that's still from the Sun Belt, because if you go into the Midwest where there's a lack of supply, you're still seeing very healthy rent growth. I would still bet on the markets that are not seeing starts reaccelerate as a way to profit from stronger fundamentals.
Not to say it's great out there everywhere, but there are markets that are seeing not only inventories coming down for single-family availability, i.e. Miami. Miami has been where we've seen green shoots for-sale, but overall lack of availability; Miami inventory this year is down 17%. What is available there in terms of multi will benefit from the lack of supply that is now becoming apparent in the for-sale market.
I would bet on Miami, if I was a developer that will start to thrive as the inventory gets cleared because of the lack of that for-sale availability. And that would be the same in markets like San Francisco; I mentioned Tampa's showing green shoots as it relates to improvement, with inventories coming down double digits. Multifamily operators might benefit there as well.
Keep in mind multifamily is the better right now asset class fundamentally, from the perspective that we are seeing incremental accelerating renter households, while owner households are decelerating, because the affordability is clearly much more compelling to be a renter than an owner. If you're comparing an apartment, maybe not the best apples-to-apples to a single-family starter home, it's about $900 all in differential between monthly payment property taxes and HOA and mortgage insurance are factored in and overall insurance. I think it's looking more promising, from our perspective, to be in the multifamily sector, if I'm making bets, then in the for-sale market right now, especially in the new home market, even as inventories, spec inventories are down double digits from where they were last year. But there's a lot more challenges in for-sale and in the new home market than in multifamily, we think.
Willy Walker:
And you went to Miami there and Tampa, and San Francisco. What about the darlings of the sort of 2019 through 2022 era of Austin, Texas, Nashville, Tennessee, or Charlotte, North Carolina? Those were the boom markets, they got oversupplied. Austin last year had what we call it rent growth, because we're all so used to seeing rent growth, but it was the biggest rent decline year-over-year of 7.7% in Austin. When does Austin go from catching a falling knife to actually hitting bottom and starting to build back out?
Ivy Zelman:
Based on the supply that we see there, the level of call it, lease-up necessary, and that what's still coming, I have quartiled the markets into where we'll see maybe three to five years of continued supply oversupply, that will need to be absorbed at a decelerating rate, but still oversupply. It might be a few more years before we really see Austin reaccelerate, because of the significant overbuilding that happened there. That's the same in a lot of the other cities, whereas in the Carolinas, specifically, I think they're better positioned because South Carolina was the number one state for population growth through the most recent data. You're still seeing better migration and overall growth in those markets than in Austin.
Willy Walker:
And what about, as you talk about a market like South Carolina, it makes me think about Boise, Idaho. And it makes me think about the growth that we've seen in Boise. And Boise has been one of the biggest boom markets. Your most recent home builder survey has the sentiment on the Boise market as being the number one market in the country from a home builder standpoint. A lot of that, all of that is due to Micron and Micron's tremendous run as it relates to being one of the major chip manufacturers in the world. Its stock price is going through the roof. I actually heard somebody the other day, Ivy, go from the Mag 7 to something like the, I can't remember what they called the nine, but they'd included Micron in that nine. They'd added them in as like the big stocks that are driving the stock market today. But as you think about that, as it relates to AI, where data centers are being built, where the knowledge economy, if you will, is growing, such as San Francisco, which you mentioned previously is one of the fastest-growing economies in the country.
Boise is up there. Scottsdale, Arizona is getting the Taiwan semiconductor plant that's being built there. How important is job growth to this overall housing mosaic?
And if it is based on that, obviously you and I both know that growth markets are distinct from good real estate markets. I mean, you can have a high growth market with unlimited supply, and it doesn't turn into a really good real estate market. You can also have modest growth with no new supply, and it actually is a pretty good real estate market.
As you sit there and look at your kind of heat map of where, from either single-family or multifamily, you'd put bets. Are you going after that job growth, or are you looking at a supply-demand that says, I'm going to be a real estate owner for the next 10, 20 years? It's much more to do with the supply-demand curve than it is with the job growth curve.
You're on mute, I think.
Ivy Zelman:
Sorry, there's not a single variable that we would look at. We're going to look at, we're actually for our housing summit, we'll be talking about relative market scorecards, like where the best markets are, but a lot goes into that. But employment would be at the top of the list because builders have always used something called an EP ratio, which is the incremental change in jobs divided by the incremental change in permits to kind of gauge where the market is.
A really high EP ratio would indicate that you're going to need more supply because you have very strong job growth. On the market, you didn't mention Columbus, Ohio has been a darling because they're building a chip plant and there has been a lot more inbound, but it's not because necessarily we're seeing jobs there, but we're seeing developers recognize there'll be jobs there. They're coming there where they hadn't been there previously to try to get in front of that and add more supply. And that I think is the right strategy for a market that's seeing job growth. But that's not the only variable. We want to look at other factors, like what the inventory picture looks like right now, overall inventory, for-sale inventory, what's multifamily in terms of the availability of supply, as well as other factors—household growth, what's happening with new employers, or that's job growth. But there's a lot that goes into that, the demographics also. We have a secret sauce that will determine the ranking of the markets, and we will publish a report after the summit about it.
Willy Walker:
Sticking on the sort of stock-picker theme and to your point about, there are a lot of inputs to it. It's not just job growth, it's supply demand characteristics, et cetera. But many people in the multifamily industry survived to ‘25 and then ‘25 came in, and we saw no rent growth. And everyone has sort of jumped over ‘26 to sort of, and I used this term when we were together in Sun Valley, a slice of heaven in ‘27. But when do we start to see rent growth? And as the answer to that, you're not going to see national rent growth anytime soon, but you might see it in specific markets. And therefore, pick up the Zelman research report, and we'll dive in and tell you that Nashville is going to start to grow then. And San Francisco is already growing at sort of unbelievable rates, but you're not going to see national rent growth across the board. And it's not going to be a sort of monolithic market, which it is. And if you can, I know people listening to this would love to know what markets you think have the components for rent growth to hit sooner rather than later.
Ivy Zelman:
Well, we are forecasting rent growth to increase in ‘26 to roughly for multifamily, 1.5% nationally. And then we have that increasing to 2.6. There's a little bit of a downward-
Willy Walker:
At 27?
Ivy Zelman:
27, correct. That doesn't get back to the trendline though, until ‘28, we get to 3.7. Obviously, there's subject to downward pressures if rates remain as elevated and we're not seeing any abatement in inflation, but that's our current forecast. And therefore, we are seeing the fortunate benefit of re-acceleration, with the exception of the July data I just mentioned that saw slowing and blended rent growth. We're optimistic that lease-up competition is improving.
One of our survey questions to our owners and operators is about the level of lease-up competition has been coming down, and the use of incentives has been plateauing in terms of concessions. As we start to read the tea leaves, we do see that markets will start to show improvement. More likely it's delayed in ‘26 into ‘27 to see any real acceleration, but I think it's slowly getting better and I'll be happy to share the relative performance when we finish the analysis.
Willy Walker:
One of the things that you and Kris Mikkelsen and I have discussed is just that many people who are buying right now in the multifamily space are buying on, if you will, negative fundamentals and that the moment that you start to project out rent growth in the pro forma, that it is going to change the calculus immediately and that all of a sudden you're going to get all these properties that have been sort of sitting out there waiting for an actual bid on them to actually get real bids and we're going to start moving in the right direction in a pretty dramatic fashion. Hearing you talk about some in ‘26 and then that starts to actually get well below trend up in 2+% in 2027 is encouraging.
Ivy Zelman:
Yeah, I agree. And I think we're again, more optimistic. There's demand and we have demand supported by renter households accelerating. We have very favorable affordability. The rent-to-income ratios are not really much above the trendline. So there are really much stronger fundamentals for multifamily.
Underwriters today that are looking at transactions, they're looking at cap rates going the wrong way because of where rates are.
I think we need to see rates kind of stabilize, but I don't disagree that there's a lot of pent-up demand in the transaction market that will be unleashed, whether it's getting improvement at the long end of the curve for a 10-year paper, or we have more confidence that rent growth is going to reaccelerate. And it might be just because the for-sale market will remain so much in the doldrums as rates are keeping affordability at very, very stretched levels that people do need shelter. And even if young adults are not moving out as early as they've done, you will have incremental households. And I think multifamily will be the beneficiary of that. More optimistic for sure there.
Willy Walker:
To wrap this conversation up, A Decade Divided, which is the follow-on to your Cradle to Grave analysis, which was exceptional. But in A Decade Divided, you read it, and you are the CEO of a home builder. You are the CEO of a multifamily, either developer or owner, or you are the CEO of a build-to-rent SFR company.
Once you've read it, what would you expect or want to see one of those CEOs do as it relates to their strategy based off of the data that comes out of it? Let's start with home builders, then we'll go to multifamily, and then we'll go to SFR, BFR.
Ivy Zelman:
Well, I actually presented the question to your panel in Sun Valley to Ryan Marshall, asked if the A Decade Divided or any of the demographic analysis would make its way into the boardroom, and would it possibly change your strategy? And the answer was no. Although I would give Pulte credit because they're the only public builder that's really made, put a stake in the ground to go after active adults. And now again, this Explorer product. I think directionally they're taking advantage of the changing demographics, and they're actually doing a very large study that will be supportive, I believe, of their strategy.
That is not the case everywhere for our home builders. Pulte might be unique in that respect, but I think that it's such a big amoeba, some respect that's so far away, no one's really worried about it. But when you look at one of the exhibits in the report, we're currently calling it running 1 million floor starts. Now, if we start to see the 2030 and beyond that we're going to see household growth go as low as we're forecasting, we're going to have to have starts come down or we will oversupply the market. And will builders recognize this and pull back on starts? I think that's debatable. And I think when you look at the market share of the public companies for the new home market at 55%, they're driven by shareholders that want them to grow.
I can't imagine that they're going to adhere or think about five, 10 years out that we should really be buying a lot less land or land banking less land and be more, let's say, nimble given what could be troubling demographics. I'd like to say that I think they're going to start thinking about it, but it probably has to hit them in the face to some extent before there's really any major changes.
Again, they don't control what others are doing, but it is so concentrated. Unlike multifamily, where if you talk to CEOs that might be more regionally focused, it does matter where you are and where you operate. If you're a national multifamily operator, I think you'd have a similar reaction to what a large public builder that's national might think, okay, this is too far out for me to worry about. We're talking about 2030 and beyond, but we do likely have a scenario where if we rent households, if we're going to have household growth, it could still be more skewed to renters.
Absolute numbers for owner households are much higher, but if renter households are going to grow, you could capitalize on that depending on again, where markets go back more layer down than just the demographics. Where are we seeing regional differences that relate to the underpinnings of the other aspects of fundamentals? I think it seems as if there's not a lot of attention to this. I know talking with clients of W&D, some are very focused on it and really more on repairing and remodeling existing multifamily products than starting and developing incremental new products. I think we might see a shift to that for multifamily operators in the transaction market, more value-add than we would new construction if they started to appreciate some of the risks that we're highlighting. I think they would be quicker because they have an alternative, Willy. Builders don't have an alternative.
Willy Walker:
Just on that, you were talking about the aggregate number of homes. I think the numbers that I pulled from one of your research reports was that there are about 95 million single-family homes in America and about 40 million multifamily units in America today. If you look ahead a decade, Ivy, where do those two numbers go as it relates to? I mean, right now, we're at a home ownership rate in America of somewhere around 64%. I think I'm right on that, something like 64%, 65%. We got to our peak close to 70% back in the George W. Bush administration in the early 2000s and have been firmly in the mid-60s. You've talked about in this hour the fact that right now, because of affordability, it's advantage multi over single-family. Project forward 10 years and say, does that 95 million single-family homes move up well over 100 million because there's just going to be a need for that single-family product, or does the 40 million multifamily homes move from 40 to 45 or 50 because we become more of a renter nation?
Ivy Zelman:
Just thinking about the bookends, births versus deaths, and recognizing that more people will be dying than born in this country when you think about, therefore, again, incremental homes coming to market through estate sales, it would feel like we're going to see a shrinking of homeowners as opposed to acceleration, whether it's going to shrink dramatically or it's going to modestly come down, but you're having less people start buying starter homes.
They're starting to buy homes at 40 as opposed to in their 20s. If they're selling because people have passed, we're probably going to see a lid on growth and maybe more pressure on absolute numbers because of the phenomenon of the demographics. The flip side would be multifamily would be the beneficiary of that, but might also not grow significantly higher than where we are currently because overall households are going to continue to decelerate, but I would put more, I guess, weight on multifamily improving than I would on single-family ownership.
Today, people say housing can't be that bad. Our homeownership rate has been roughly 65%, 64%, and that's pretty much the trend line, but I think it's very bifurcated, and it's not the composition that looks very different from who owns and at what age.
Willy Walker:
Yeah. Super interesting. Ivy, thank you as always. Great to spend an hour with you. I get the luxury of having you around all the time, but for those people who listened in today, I hope you enjoyed our conversation. As you can tell, the A Decade Divided research report that Zelman put out is a fantastic report with a lot of data that gives you a very broad view of housing and housing over the next five years in the 2020s and then sets up what's going to happen after 2030.
Ivy, thanks so much. Hope you have a great day and thank you everyone for listening in. We'll be back next week with another Walker Webcast.
Ivy Zelman:
Thank you guys.
