Ivy Zelman, CEO of Zelman & Associates, joined CNBC recently for a discussion on the U.S. housing market. The biggest takeaway from their latest analysis:
“Our view is that the market is balanced and that there is not a shortage.”
Zelman’s case rests on a handful of data points: spec inventory levels, new home sales trends, a fresh demographic report on population and household growth, and price corrections already showing up in specific markets.
Byron Lazine unpacked each of Zelman’s answers on this week’s Hot Sheet.
Read on for the highlights, then tune in for Byron’s full breakdown.
Is There a Housing Inventory Shortage?
For the better part of the last several years, the housing industry’s explanation for tight supply and firm prices came down to one idea: there aren’t enough homes. That shortage narrative shaped how builders planned communities and how the market thought about risk.
Zelman describes a different reality. Spec inventory, homes built without a buyer under contract, has piled up in some markets. Unsold and unrented units are becoming a bigger part of the conversation than empty pipelines. She stated:
“There’s risks we’ll have oversupply in the next decade if builders continue to have the relative starts they’re seeing right now continue. So I think the rhetoric around a huge housing shortage has quieted down now that we have a lot of empty houses, spec houses that aren’t selling or empty apartments.”
The question is whether builders pull back before oversupply becomes a bigger problem.
There’s a concrete signal pointing in that direction. Builders have been working down the number of homes sitting finished or close to finished without a buyer lined up.
“Good news was inventories are down, spec inventories are down double digits from their peak.”
If builders keep bringing spec levels down over the next few years, Zelman said the market has a real shot at settling into something steadier.
The Rent vs Buy Math Is Pulling Buyers to the Sidelines
Affordability is the biggest lever on housing demand. When owning costs more than renting a comparable home each month, buyers who could go either way tend to sit on the sidelines. Zelman is seeing this in for-sale inventory turnover.
The reason behind it is basic budgeting math.
“Definitely very compelling rent versus buy. The difference in monthly payment is roughly $850.”
An $850 monthly difference is a (more than) big enough number to change behavior, and rental market data is showing the impact across the board, with some markets seeing stronger rental growth than others. Zelman explained:
“So I think the rental market is seeing benefits reflective in improving rents, accelerating rents, and the REITs that have reported so far this quarter are showing acceleration and even new move-in rent growth has stabilized and is positive for some of them. So that’s good news. We haven’t heard from the ones in the Sunbelt yet. We think that’s more challenging, but the coast and the urban markets are definitely performing better.”
Lazine added this:
“Rents are very attractive, and when you’re looking at housing inflation… the advantage is the renter, not the home purchaser, which obviously we know what that does to long-term wealth in that situation. But if you get energy prices stabilized again, it’s one of those reasons that I believe you’re going to see inflation start to drop back down pretty quickly. But that remains to be seen.”
Zelman’s overall data points to a housing market that has settled into balance, with oversupply as the risk to watch over the next decade.
The Demand Side Is Shrinking Too
Zelman’s argument goes beyond supply sitting on the market. Her team looked at the demand side over a longer horizon, publishing a report called “A Decade Divided” that digs into population and household growth trends through the back half of this decade.
The report’s core finding is about population growth running out of steam. Fewer new households forming means less housing is needed, regardless of how many homes builders are sitting on.
“We just published a report called A Decade Divided, and the second half of this decade is definitely showing some weakness with respect to population household growth, with immigration pretty much shut down. Birth rates are running below replacement. Unfortunately, we have an aging population, which doesn’t bode well for population growth. So really summarizes that you’ll need less supply given weakening or decelerating household growth.”
Lazine backed this up, starting with what he’s been saying for a year and a half now:
“We’ll need less supply, not more…You need supply in the Northeast, you need supply in certain areas, yes. The supply conversation is super-localized. And you’ve got to be careful there. You’re not going to go dump a bunch of supply in, say, where I’m sitting right now in Connecticut, where the average cost of new construction is up over $800,000, and the demand for supply is well under that. And the migration trends over the next 5-10 years still suggest that Connecticut is going to be a net loser and the Sun Belt states are going to be a net winner….”
Multifamily is the one segment where Zelman expects stronger household growth than for-sale housing, though vacancy rates are slightly above normal. She stated:
“The multifamily overall household growth should see stronger than for sale, but I think that the vacancy rates for multifamily are now still slightly elevated versus normal, whereas the seasonal second home market actually got pretty depleted during COVID. So, we should see more supply and those builders that are actually targeting the move up market and second home market should benefit.”
Where the Extra Supply Is Already Showing Up
Some of Zelman’s data signals near-term caution, and some of it points to markets that have already found their floor.
New home sales are the caution side of that split. The headline numbers came in close to what her team expected. There’s a specific worry riding underneath them, tied to where mortgage rates go from here.
“Overall, they were in line with our expectations, but I would say that we’re worried that we’re going to see softening with rates moving higher.”
If rates keep climbing, the demand that’s currently absorbing existing inventory could soften right as builders are trying to work down spec homes.
The optimistic side of the split shows up in specific markets that have already taken their correction. CNBC asked Zelman whether price cuts and motivated seller activity in Florida, Dallas, and Denver reflect that same supply pressure, and she pointed to Florida as her clearest example.
“I’d say the good news is that markets that got hit the hardest during COVID, we’ve seen price corrections from the peak in the double digits, high double digits. So people are now appreciating there’s value back in the market.
“Florida, for example, has seen some green shoots and I call it more stability in price. Overall, I’d say markets are kind of bouncing along the bottom.”
Bouncing along the bottom is a very different phrase than ‘housing shortage,’ and it’s about as clear a sign as any of how much the supply conversation has changed this year.
To echo Lazine’s earlier point, though, the picture of supply is very much a hyperlocal one.
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