Ivy Zelman, CEO of Zelman & Associates, speaks publicly about the housing market so rarely that, when she does, real estate professionals should take note.  

One of those rare interviews came on Friday, November 17th, when Zelman joined the “Squawk Box” hosts on CNBC to discuss the state of the housing market, as well as new home builder incentives, the impact of high mortgage rates on existing home sales, and what she expects in the next two years. 

As Byron Lazine pointed out in last Wednesday’s episode of the Hot Sheet, Zelman has predicted several major events and shifts in the housing market in years past and has an insight into the market that knowledgeable real estate professionals have learned to respect. 

Here, we’re covering statements made by Zelman in the CNBC segment, as well as Byron’s review on the Hot Sheet. Both offer valuable insights into the current market and what we can expect in 2024 and 2025. 

Who is Ivy Zelman?

To start things off, in case you’re not yet familiar with Ivy Zelman or Zelman & Associates, you might be wondering right now, “Why does this person and her opinion on the housing market even matter?” 

Ivy Zelman is a Hall of Fame Institutional Investor Equity Analyst. She’s been in the housing market for a long time. She predicted the housing burst, the bubble, the great mortgage crisis during the Great Financial Crisis that she just mentioned… If you’re unfamiliar with Ivy, every time she speaks, I listen.

Byron Lazine

As one who makes it her business to understand housing market behavior, Zelman has made numerous statements referenced by seasoned professionals, including one quoted by Steve Harney in a Tweet that will always be relevant: 

We would never suggest that a real estate company could be successful without fully understanding local market trends. But ignoring macro trends or assuming they do not carry the same weight would be an equally erroneous suggestion. In our experience, the most effective industry leaders appreciate the appropriate balance between the two ends of the spectrum.

Ivy Zelman

CEO of Zelman and Associates

New home builder incentives 

Early in the CNBC interview, Squawk Box host Joe Kernen asked Ivy Zelman whether new home builders are less sensitive than most sellers to today’s elevated mortgage rates. Are they better positioned than the average home seller in relation to current market conditions? 

And, if so, what gives them the advantage?

Overall builders have had more resilient sales. And I think part of that is all to their credit. They’re really offering great value to the consumer by giving mortgage rate buydowns. And that’s enabling the buyer to have less stress on affordability. So, they’re buying rates down as much as two points. And that’s obviously pretty helpful. They’re offering incentives, and they’ve got product. And while they’re providing that incentive, and that could impact margins, they have product where incremental demand, there’s not a lot of existing inventory.

Ivy Zelman

CEO of Zelman and Associates

Byron referenced a recent Morgan Stanley prediction that we would have more new home sales in 2024 than existing home sales. “That’s a huge shift from the market we’ve known the last decade-plus.” And obviously, that’s great news for builders. 

He went on to explain why new construction has an edge in the current market, viewed from the perspective of today’s buyers. 

Think about how many existing home sales do come on the market where the buyer doesn’t even want to buy the deal because they need to do everything to the property—in comparison to a new product which is maybe up to hurricane standards, if you’re in one of those markets, or up to flood standards, if it’s a waterfront property. Whatever the standards are of construction in that market, the new product is going to live up to that… But then you also have the ability of the builders to work on that mortgage rate, which has been…even more beneficial here in the last week as it’s started to come down, certainly well off the 8% we experienced just a few weeks ago.

Byron Lazine

Existing home sales

Kernen’s next question for Zelman had to do with existing home sales, especially given the recent drop in mortgage rates—specifically whether those high rates had caused a lull in existing home sales. 

Existing home sales are right now probably at the lowest since the GFC (Great Financial Crisis). If you look at roughly four million existing home sales as a percent of households. It’s about 3%. Rates today, the average homeowner—more than 80% are below 5%. You’ve got almost half below 4%. So, when you start looking at that, we need a lot further decline in rates to reignite the existing home market.

Ivy Zelman

CEO of Zelman and Associates

The 2024-2025 real estate market

Asked about 2024, Zelman confirmed Kernen’s statement that she’s expecting housing market activity to remain flat in 2024, with the new home market down slightly. 

With respect to what unsticks the market, I don’t know. I think you’ve got the risk of distress, looking out further…Look at the aging population, that would help move some people out, vacancies would rise.

Ivy Zelman

CEO of Zelman and Associates

Kernen then asked Zelman whether she expects a rebound in 2025. 

We’re looking for a re-acceleration of a very low base for existing home sales, only up 7%. But it still would be, on a relative basis, extremely depressed levels.

Ivy Zelman

CEO of Zelman and Associates

Asked how and when (or if) the inventory shortage will work itself out, Zelman addressed ongoing inflation with land prices, as well as how the multifamily market will impact potential buyers. 

The problem is that land prices have been accelerating. There’s been no letup, and land inflation continues to rise. So, with respect to affordability and providing more affordable housing—really without any government support, developers just can’t pencil returns to provide enough housing that’s needed. The multifamily market right now is seeing a deceleration in rents because of so much supply that’s coming to market. And that’s providing consumers some relief.

Ivy Zelman

CEO of Zelman and Associates

Byron has spoken before about the glut of multifamily coming to market, which will slow rent growth and widen the gap (in some markets) between rents and mortgage payments in the coming months. 

And as home purchases remain unaffordable for many, it’s hardly surprising consumer spending habits reflect a shift in priorities. 

Consumer spending and mortgage demand

Regarding consumer spending on home improvements, which Kernen described as “crappy,” Zelman acknowledged that spending in this area is decelerating and weakening. 

From what our survey shows, we’re really now below where we were in 2019… Within housing, I think it’s a tough time right now. We had such a boom. And if you look at the consumer’s wallet, their spending was so significant. We call it the ‘Honey to-do list,’ everything we did while we were locked up at home. We’re just seeing more wallets shifting to other areas, whether you talk about hospitality, travel, service. It’s just not in the housing market as a priority.

Ivy Zelman

CEO of Zelman and Associates

While, to Zelman’s point, mortgage rates likely will need to drop more significantly before we see a rebound in existing home sales, Byron pointed out the recent (encouraging) increase in mortgage applications, according to the Mortgage Bankers Association (MBA)

And while fewer homeowners may be investing in home improvement projects, sellers are still, for the most part, getting 100% (or more) of their asking price, thanks to motivated buyers and low inventory. 

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