Ivy Zelman: The Queen of Housing Still Reigns

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Democratic midterm sweep won't meaningfully fix housing affordability; local regulatory costs are the binding constraint.

Ivy argues the Democratic sweep will do little for housing. The real obstacles to affordability start at the local level: impact fees, environmental fees and zoning. Unless local municipalities are willing to cut these costs, federal government action can't fix affordability. Housing stocks still rallied after the midterms, but she doesn't think the election changes the affordability picture much.

“we don't think that the DEM sweep is going to do much of anything to really improve housing.”at 1:38

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Each 25bp drop in mortgage rates cuts monthly payments about 3%; rates are the key affordability lever.

Affordability can improve through falling home prices, falling mortgage rates, or incomes outgrowing home prices. Income growth is happening but is a slow grind. Each 25bp decline in mortgage rate cuts the monthly payment about 3%, so a 100bp drop cuts it nearly 10%. Ivy says a rate rally moves the needle. She says that to get affordability back to normal, holding other variables constant, rates would need to fall to about 4.5%. Refinancing activity and more for-sale demand usually start when rates fall about 50bp, and improving trends would need declines of at least 50bp.

“So as rates rally for every, call it, 25 basis point decline in mortgage rate, that equates to about a 3% decline in monthly payment.”at 2:50

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Tariffs won't materially lower new-construction costs; builders' scale absorbed the hit, with relief mainly for home improvement.

Tariffs have been a big headwind for suppliers and downstream home-improvement contractors. Builders, given their scale, pushed back successfully, and their sticks-and-bricks and labor costs were flat to down a few percent until the last month or two. That compares with historical increases of roughly 4-6%. So Ivy doesn't expect tariff relief to help new-construction affordability much. It may help a bit on home improvement.

“So we don't see tariffs going away really helping the affordability on the new construction side. Maybe it helps a bit on the home improvement side”at 4:02

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

ICE raids disrupted construction in a few markets, but labor is not tight nationally.

The labor market has not been tight at all. Over roughly the last three months, ICE raids in certain parts of the country have created fear that workers won't show up to job sites, even legal workers. That has disrupted construction cycles in a few markets, but it only showed up in Ivy's checks recently. If the market picks up, labor strain could return, and relief from ICE raids would be incrementally positive.

“the labor market's not been tight at all... more ICE raids in certain parts of the country that have created fear that people don't want to be on the job site”at 4:17

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Move-up housing demand is hurt by consumer confidence rather than rates; model-home traffic has dried up.

The move-up segment has been more affected by consumer confidence than by rates. Builders tell Ivy that the last six to eight weeks have brought no traffic to their model homes. Ivy hopes the post-midterm period will improve confidence and help move-up demand, but she doesn't think it changes the affordability picture enough.

“The move up market has been more impacted by consumer confidence, not by rates.”at 6:30

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Public builders' market share growth has likely peaked near 53% of new homes.

Public builders were under 10% of the market when Ivy started following them in the early 1990s and now have over 50%, about 53%. Recent acquisitions have been mostly private-sector deals. Japanese public builders and Berkshire Hathaway account for another 12% of new home sales. Ivy thinks the public builders' share growth has peaked for now.

“So with a market share growth for [public builders] is sort of, I think, peaked at the moment.”at 8:07

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Weak demographics and halted immigration will slow household growth; renters outpace owners for years.

Birth rates are below replacement and deaths are accelerating as the oldest boomers reach 80. Without a real increase in immigration, which the current administration has halted, population growth should decline substantially starting beyond 2030, and household growth will slow. Renter households are growing faster than owner households because the monthly payment gap between the median apartment and median for-sale home is almost $1,000. People stay in apartments longer and rent for longer than historically.

“the demographics look very troubling for the country's future, and we have birth rates that are below replacement.”at 9:00

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Single-family rental is better positioned than for-sale housing due to affordability and tighter supply.

Ivy is constructive on single-family rental within the housing ecosystem. Lack of affordability for for-sale homes pushes demand toward rentals. Supply is also more constrained, and single-family rental is unlikely to get the supply increase that new construction would bring.

“But single family rental is definitely better positioned because of the lack of affordability for sale.”at 11:00

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Fannie Mae and Freddie Mac privatization is dead under this administration and now further unlikely.

Ivy agrees that GSE reform, which would have spun Fannie and Freddie out of conservatorship, was dead on arrival with this administration. She says the Democratic sweep puts the nail in the coffin. Democrats would more likely want Fannie and Freddie to remain government-owned and support the housing market.

“I think that it was dead on arrival with this administration. I never thought it would come to fruition.”at 12:55

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Sunbelt home prices under pressure from rising inventory; Midwest and Northeast prices still rising on tight supply.

Sellers have refused to capitulate on price, so many pull listings or become reluctant landlords. Some capitulation is now showing up, and competition in the existing market is rising. In the Northeast and Midwest, few people are listing, demand exceeds supply, and prices are still rising. In the Sunbelt, prices are under pressure because inventory and listings have grown. Ivy says the flat housing market will be entering its sixth year in 2027, and she expects listings loosening to pressure prices in parts of the country.

“Flip that to the Sunbelt where home prices have been under pressure, there's too much inventory and listings have been increasing.”at 17:11

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Builders have hit limits on mortgage rate buydowns; lower rates would cut buydown costs and improve margins.

Since 2022 builders have used mortgage rate buydowns, for example down to 4.99% on 30-year loans, at a meaningful margin cost. Falling rates mean smaller buydowns and incremental margin improvement. Buydowns have still helped cushion sales. But qualification problems remain: down payments are a hurdle, and back-end debt-to-income ratios on cars, cards and houses are above 50% of income. Builders are now turning to base price cuts, more options and closing-cost help.

“the rate buy downs have definitely helped and cushioned what would be much softer sales, in our opinion... But builders have finally hit a wall even with buy downs”at 19:08

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Manufactured housing is gaining share from for-sale homes, but its 30-35% valuation premium and margin pressure temper enthusiasm.

Manufactured housing has been under some pressure but is gaining share because it is growing faster than the traditional for-sale market. The 21st Century housing act and potential regulatory and zoning changes could be tailwinds. But manufacturers trade at a 30-35% premium to the market, and they still face tariff and input-cost margin pressure. Their customers are squeezed by inflation, so the sector is not going gangbusters.

“we've been seeing manufactured housing, although under somewhat pressure, some pressure gaining market share because it's growing faster than for sale in the traditional market.”at 21:11

Danny Moses · Moses Ventures

GPU-backed securitizations assuming ever-rising GPU prices echo pre-GFC mortgage securitization and rating-agency blind spots.

Funds are building a GPU index and a securitization pool tied to GPUs and data centers, with NVIDIA involved alongside large asset managers. GPU prices are watched daily like the Case-Shiller index, and the assumption that GPU prices never fall mirrors the 'home prices never go down' assumption before the GFC. Rating agencies may again lack downside scenarios in their models. Danny sees a rhyme with the GFC and the ABX-era hedging tools.

“But I think it's ironic that you now are gonna have an entire asset class that GPU prices never go down because prices have been accelerating.”at 26:45

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

AI trade looks euphoric and unsustainable; Ivy has sold her AI exposure and expects a break.

Ivy sees parallels to pre-GFC euphoria, where people assumed no downside. She has taken her money off the table on AI exposure, mostly in private companies and startups. She thinks the AI trade has been predicated on expected usage and benefits that most industry participants aren't seeing yet. Those participants are actually pulling back on AI spending, so she feels the trade is wobbly and would be on the sidelines. She also thinks a stock market crash and the AI trade unwinding would squeeze household wealth and hurt housing. The horizon is inferred from 'something's going to break here' and is not explicitly stated.

“personally I've taken my money off the table on any AI exposure I've had, mostly in the private sector or that, you know, startups that I've been exposed to. But, you know, it just feels like something's going to break here. It's just not sustainable.”at 27:44

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Getting more favorable on multifamily REITs; rents are still falling but the rate of decline is improving.

Multifamily has had more demand, and the rate of change in rents has been improving from very depressed levels, mostly in the Sunbelt. In Austin, for example, new move-in rents are still negative but less negative. REIT transaction markets have been dead, and absolute REIT performance is still under pressure. But relative performance is improving on the margin, so Ivy is getting more favorable on multifamily REITs. She is already favorable on single-family rental.

“So I'd say getting more favorable towards multifamily REITs and already favorable on SFR.”at 23:24

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Long-end yields likely rally despite deficit concerns if an AI-driven slowdown turns into a recession.

Ivy says the market is finally recognizing the deficit and debt problem, and the bond market is signaling that. But if the economy slows as the AI trade unwinds, that growth concern outweighs deficit worries and rates will rally. The rally would come even with heavy federal debt, which Ivy puts at about $42 trillion, as a risk-off response.

“And if the economy is weakening, I think that trumps the concern over the deficit and rates will rally.”at 24:38

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

A recession from an AI-led market unwind would keep housing depressed even as rates fall.

Ivy argues that if the AI trade keeps unwinding, the economy slows and wealth effects hit households. Recession 'trumps everything' in her world. Even with lower interest rates, housing would stay depressed if people are losing jobs, so housing is not investable in a recession even if rates fall.

“So everything in our world recession trumps everything. So if interest rates are going down but we have a recession, you still can't be involved in housing.”at 24:42

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

AI deployment in homebuilding is baby steps; builders are cutting spending until the market improves.

Manufacturers, distributors and builders are all working out where to deploy AI. The mortgage industry has had the most success. Other examples are a robotics startup that scans job sites and AI tools that notify trades when it's their turn. Ivy calls these little things with nothing significant yet. Builders are under pressure and won't spend on AI right now, so adoption should pick up only if the market gets healthier.

“I'd say it's just baby steps and I think companies are treading carefully.”at 31:19

Ivy Zelman · Zelman & Associates (a Walker & Dunlop company)

Homebuilder rally was mostly short covering, with short interest at record highs.

Short interest in homebuilders had never been higher, and short sellers were heavily positioned. The housing sector trades more on sentiment than on fundamentals. Ivy thinks most of the post-midterm rally was short covering. The sector was ripe for a move higher, even if only short-term. Building product companies that cut guidance still rose 8-10%, which shows the market looking past the current quarter.

“I think the majority of the rally was short covering personally.”at 32:28