Housing Weakness is spreading to luxury buyers | Ivy Zelman

Lennar

Across the shows: 1 speaker in other episodes, 0 bullish and 2 bearish calls, past 30 days

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

  Lennar is a value opportunity for investors with a much longer horizon despite the housing downturn.

  Zelman says there is value in Lennar if an investor can take a much longer horizon. Housing is weak, and her own price targets are typically 12-month, so she notes that different investors use different strategies. The value case rests on a multi-year view rather than near-term recovery, which fits the value-investing approach she describes.

  “And right now there is value in Lennar if you can take a much longer horizon.”at 20:22

Berkshire Hathaway

Across the shows: 2 speakers in other episodes, 2 bullish and 0 bearish calls, past 30 days

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

  Berkshire has a big housing bet and is adding to its position when nobody else wants housing exposure.

  Berkshire owns many homebuilders, Clayton Homes, and housing-related companies such as Benjamin Moore, so it has already made a large bet on housing. Zelman reads its recent buying as adding to the position while others are avoiding the sector, which she describes as the classic value-investor setup. She calls Berkshire a value-driven investor and says value investors tend to earn their best returns when nobody else wants an asset.

  “So I think they've made a stake in this market and they're looking to they're adding to their position when nobody else wants it.”at 20:44

VanEck Gold Miners ETF

Across the shows: 1 speaker in other episodes, 1 bullish and 0 bearish calls, past 30 days

• Trey Reik · Bristol Gold Group LLCBullish

  Gold miner ETF GDX holding up better than gold, a signal that long-term gold equity investors are not bearish.

  Since the March high, gold is down about 25% while GDX is down only about 29%. Reik says that for someone who has followed gold equities as long as he has, a 25% drop in gold would normally drag miners down much more than four percentage points. He reads this as a signal that gold equity investors, who tend to have longer horizons than gold traders, are not treating the decline as a breakdown. He concludes that the stocks may already be signalling that gold's downturn is not a serious problem.

  “if you told me gold was going to be down 25%, I would certainly think the stocks would be doing much worse than four percentage points lower. So the stocks may already be giving us a signal.”at 40:07

US housing

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

  Housing has weakened further since rates spiked; her September builder survey was among the weakest on KPIs.

  Since mortgage rates spiked above 7%, housing has taken another leg down. Her September survey of homebuilders showed among the weakest rate-of-change on KPIs, and the weakness has continued into October. It has spread beyond entry-level buyers to luxury and second-time move-up markets, which had previously been healthy but are now also feeling pressure from consumer confidence hit by geopolitical events.

  “we really have seen since rates spiked another leg down. So our September survey for the homebuilders was probably amongst, if not the weakest, from a rate of change on KPIs”at 2:10

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

  Mortgage rate buydowns, used on about 80% of new homes, now cost too much to sustain builder margins.

  Public builders, about 53% of new home sales, have offset high rates with mortgage rate buydowns, and roughly 80% of new homes sold use one. Buydowns are expensive: buying down 250 basis points costs nearly 900 basis points of gross margin. Builders previously offered up to 12% incentives to sell at a 4.99% rate. Buying down to a 5.5% rate is now too costly for most, which keeps entry-level buyers from qualifying.

  “So buydowns are expensive, though. So if you want to buy a rate down two fifty basis points, that's going to be nearly 900 basis point negative impact to gross margin.”at 4:28

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

  Deaths will exceed births by 2030, so housing demand fades and the US is not truly short of housing.

  Birth rates are below replacement and the population is shrinking, while deaths are rising in absolute terms. Immigration has been halted, which slows incremental household formation. Together these reduce future housing need. Zelman's view is that the US is not in a shortage and is in a fairly balanced market at roughly 1.4 million starts. By 2030 deaths will exceed births, and the industry is not prepared for the lower need for supply that follows.

  “More people in this country will die than are born, and we will start to see a lot less need for housing supply as we enter the new decade.”at 8:04

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

  Land sellers and land bankers must capitulate on prices as builders cut starts; land prices have been sticky.

  Land prices have been sticky, decelerating but not falling year over year, and the latest land development survey shows only a modest tick lower in finished lot prices. Builders are pulling back: the September survey showed single-family starts down 7% year over year. With demand weakening, land sellers will have to cut prices, though their margins are thin because roughly half their costs are hard costs and diesel prices have doubled. She expects collaboration, since idle land is costly in downturns.

  “But I think the land sellers, land bankers are going to have to capitulate, given the weakness that they're seeing on the end demand from their builders that are now going to pull back on starts.”at 8:42

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

  Renter households are growing faster than owners fall, and oversupplied Sunbelt rents are now affordable.

  Renter households are growing faster than owner households are shrinking, and incremental renter households are accelerating. Supply built up across the Southwest and Southeast has pushed rents down, so rent-to-income has become very affordable. This is the one area she sees green shoots across an ecosystem that is otherwise hurting.

  “the renter households are growing faster than owner households are going down, and incremental renter households are accelerating.”at 12:01

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

  Young adults living at home (now about 22%) cut household formation, and the share will not fall below 20% again.

  The share of 20-39 year olds living at home rose from about 15% in the 1980s and 1990s to about 22% now. Each 100 basis point increase in that share removes about half a million households from formation. The share fell toward 20% during COVID but reversed when rates rose. Zelman does not expect it to go below 20% again, because affordability and changed mindsets both keep young adults at home and delay homeownership.

  “for every 100 basis point increase in young adults living at home, that takes away half a million households.”at 13:48

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

  Affordability improves only if home prices fall, rates fall or incomes rise, and the recovery will be a slow grind.

  Affordability can improve only through three variables: home prices falling, mortgage rates falling, or incomes accelerating. Wage growth is currently outpacing national home price growth, which helps, though this does not hold in every local market. Land price resets would also lower builder costs but would be slow. Zelman expects a very slow grind. Many households have not saved enough to buy, which adds to the affordability challenge.

  “So it really could be a slow grind because we are seeing wage growth exceeding currently home prices on a national basis.”at 17:55

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

  Labor and material costs are rising for builders as ICE raids hit job sites, and they cannot pass costs on.

  Since late summer builders have been hearing more reports of ICE raids and job sites being disrupted. Labor had been plentiful because the industry was so weak, but that is changing. Input costs, including materials and transportation, have also been rising, and builders have not been able to pass them along. Zelman says labor and material costs are both now going the wrong way for builders.

  “And labor, with the industry being so weak, was pretty plentiful. So starting late summer, we started hearing noise of more ICE raids and more job sites being impacted.”at 19:28

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

  Public builders hold a 500-1,000bp cost-of-capital edge over private builders, driving consolidation.

  Scale matters in this downturn. Public builders' cost of capital can be 500 to 1,000 basis points lower than private builders', and they also gain purchasing synergies and stronger trade relationships. Private builders have been squeezed by rivals with deeper balance sheets that buy down rates aggressively, so there has been consolidation. Japanese companies and Berkshire Hathaway together hold about 12% of new home share and are likely to integrate their acquisitions. Other public builders may not buy until real distress appears.

  “I mean, we've written a lot about scale and the importance of it. There's no question there's significant advantages just starting with the cost of capital of public versus private can be anywhere from 500 to a thousand basis points”at 21:17

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

  Mortgage market is solid thanks to Dodd-Frank qualified-mortgage rules, so housing is not heading for a GFC.

  Despite pressure, the mortgage market is in a very solid position, because Dodd-Frank established guardrails in 2014, including the qualified mortgage requirement. Builders have also reduced risk by going land-light and reducing debt and leverage. Zelman sees no GFC-style crisis from housing. She notes that broader risks, such as $40 trillion of federal debt and the long end of the curve, sit outside the builders' control.

  “The mortgage market, despite it being under pressure, is in very solid position since Dodd Frank put in what I call the guardrails in 2014”at 23:07

US Treasuries & yields

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

  She expects higher-for-longer rates, with long rates at or slightly above current levels in 2027-28.

  Zelman does not try to forecast rates herself, but she personally believes rates will stay higher for longer. Zelman's modeling uses blue-chip consensus and the forward yield curve, which implies rates at current levels or slightly higher in 2027 and 2028. That is the assumption behind the housing outlook, so the slow recovery depends on it.

  “we use the forward yield curve. We're not smart enough, Maggie, you know, forecast rates me personally, I think we're higher for longer.”at 17:15

• Trey Reik · Bristol Gold Group LLC

  If long yields spike, the Fed would step in with yield curve control, as it has already floated.

  Reik argues that if long-end rates rise sharply, the Fed would step in on the long end rather than let yields run. Treasury officials have already discussed yield curve control over the past two months. He reasons that the central bank's inability to raise short rates much means it would use tools on the long end if needed.

  “But I just think in this environment, if we get to that type of an event, ... So if the Fed needs to step in on the long end, they're gonna do that too.”at 34:53

• Trey Reik · Bristol Gold Group LLC

  Long-term Treasury yields are unlikely to rise much further, and the Fed would step in if needed.

  Reik says the likelihood of long rates rising much from here is very, very slim, citing reasons he had already given earlier in the conversation. He frames the fiscal problem as global, not just a US issue, and describes the bond market as near a point where rates cannot rise much further. If that rise did happen, he argues the Fed would have to intervene to cap it, and he notes the Fed has done this before. He calls himself a non-specialist in bonds, so the view is more of a general macro judgment than a detailed rates forecast.

  “But I do think the likelihood of long rates increasing much from here are very, very slim for the reasons that I mentioned. And if the Fed has to get involved to make that happen, they certainly know how to do it.”at 38:17

Gold & precious metals

• Trey Reik · Bristol Gold Group LLC

  Gold's two-year performance shows markets are worried about a deficit-driven feedback loop.

  Reik identifies himself with the gold trade, which has studied the deficit for two decades and has been waiting for a point where it becomes unmanageable. He reads gold's performance over the past two years as evidence that investors are starting to worry about a feedback loop from government debt and financing costs, a sign that the deficit concern is becoming mainstream.

  “And I think clearly Gold's performance over the past two years is demonstrating that we're in one of those periods where people are starting to worry about a feedback loop.”at 31:57

• Trey Reik · Bristol Gold Group LLC

  Gold's year-to-date pullback is a reasonable correction after big gains; $4,000 should hold as a floor.

  Gold is down about 6% year to date after gaining 27% in 2024, 65% in 2025 and 25% in January. Reik says that if any other stock or commodity fell this much after those gains, it would look like a reasonable correction, so he does not read much into the drop. He calls the January surge a blow-off that broke technical levels, but thinks gold has performed better than people expected given the strength in long-term Treasury yields. He expects the $4,000 level to act as a durable floor. Once investors lower their expectations for a Fed rate-hiking cycle, he thinks gold could get a good push higher.

  “I personally think 4,000 is going to prove to be a very durable floor. And once people reduce their expectations for a Fed rate hiking cycle, I think gold could have a pretty good spur.”at 40:29

Private equity

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

  Private equity land-banking investors will likely have to accept returns lower than they were promised.

  Public builders have moved to a land-light model, so private equity firms now supply the capital for land banking, roughly $35 billion in this market. Land prices are sticky and builders are pulling back on starts. Zelman expects land banking investors to come to grips with returns below what was promised unless something changes, and she cannot identify what would stop that.

  “And they're probably going to have to come to grips with their returns are going be lower than they were promised.”at 11:45

US growth & recession risk

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

  The economy is K-shaped: AI-linked firms do well while housing and most other industries are under pressure.

  Economic discussion has moved from rich versus poor to AI versus everyone else. Companies outside the largest AI and tech names, and outside frontier labs, are in industries under tremendous pressure. Zelman says housing is among the worst of these, so the economic split is across many industries, not one.

  “Now we have the AI and everyone else. Like, if you're not at the Big Seven or Meta or whatever these firms and you're not at Anthropic, you're in industries that are under tremendous pressure.”at 18:45

Robotics & autonomous vehicles

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

  Homebuilder AI and robotics adoption is limited to small pilots; nothing significant moves the needle yet.

  Builders are investing in AI through smaller startups and in supply-chain improvements, but nothing significant has yet moved the needle. D.R. Horton is testing a robotics framing system with a Toronto company, which she calls one-off. Homebuilding is an archaic, fragmented trades process with many interlocking pieces, so she expects adoption to take a long time.

  “all of the companies have been investing in AI through probably smaller startups, different opportunities to bring in robotics or improvements with AI via supply chain, but nothing significant enough as of right now”at 24:34

US deficit & government debt

• Trey Reik · Bristol Gold Group LLC

  Mandatory spending plus interest now exceeds tax receipts, and the deficit is nearing an unmanageable inflection point.

  Total federal debt is about $41 trillion, and the short-term rate paid to finance Treasury debt is $1.2 trillion annualized and growing. Non-discretionary spending (entitlements, veterans, and interest), before defense, is already 105% of tax receipts. That spending is growing 7.5% while receipts grow about 4%. Reik has studied the deficit for two decades and sees the cost of financing it approaching an unmanageable inflection point.

  “As Luke Croman points out, that's already 105% of tax receipts. That doesn't even include the defense budget, and it's growing at 7.5% and tax receipts are growing at four.”at 31:31

US rates & the Fed

• Trey Reik · Bristol Gold Group LLC

  Fed officials signalled no urgency to hike, and short rates cannot rise much given the debt load, so a hike is unlikely.

  After long yields spiked in early October, Fed officials including Williams, Jefferson, Bowman and Warsh said within 48 hours that no urgent action or October hike was needed, and rates fell back. Reik believes the Fed is concerned that short rates cannot rise much because of the debt load, financing costs and a negative national savings rate. Market odds of a hike before year-end have fallen sharply, and he expects them to keep falling to December.

  “And they're, I think, pretty concerned that short rates really can't go up much from this level.”at 34:29

AI infrastructure & data centers

• Trey Reik · Bristol Gold Group LLC

  The AI build-out is drawing large amounts of capital from the system, making the economy more vulnerable.

  Reik says there is a lot of stress in the system, citing rising debt, financing costs and a negative national savings rate. He adds that the AI build-out is pulling large amounts of capital out of the economy, which makes everything more vulnerable. He gives no figures for the capital involved, so this is a qualitative concern.

  “there's a lot of stress out there. The AI build out is sucking lots of capital out of the system, which is making everything more vulnerable.”at 36:45

Europe's economy

• Trey Reik · Bristol Gold Group LLC

  France is close to disintegrating, with its bond yield spread widened to 177 basis points.

  Reik says France is close to disintegrating after the events of the past two weeks. He cites its yield spread to bonds rising to 177 basis points as evidence of the strain, and he presents this as an additional source of systemic stress alongside US debt and the AI build-out.

  “And let's not forget that France is close to sort of disintegrating in the past two weeks. And their yield spread to bonds is up to 177 basis points.”at 36:54