Phase 2 - Real Estate 101 (How to or one big idea)

Podcast - Where Does Housing Go From Here

Tyler Stewert
September 14, 2021
Podcast - Where Does Housing Go From Here

Ivy Zelman, CEO at Zelman & Associates, joined us on the podcast to discuss the current housing market and where housing will go from here.

Ivy Zelman is Chief Executive Officer of Zelman & Associates holding roughly 30 years of experience covering housing and housing-related industries. In 2007, Ivy co-founded Zelman & Associates. The firm provides analyses across all aspects of the housing spectrum. Ivy’s concept for the firm remains strongly rooted in the ability to perform thematic research overlaid with proprietary surveys to produce unparalleled differentiated value-added research.

Ivy has been widely known and respected for her bold thinking and accurate assessments where others failed, helping industry players avoid costly mistakes and capture game-changing opportunities. In 2005, she called the top of the housing market. Ivy famously asked Toll Brothers CEO Bob Toll on the Q4 2006 Toll Brothers conference call “Which Kool-Aid Are You Drinking?”

From there Ivy called the bottom of the housing market in January 2012, thus reinforcing her dominant reputation within the industry. She helped best-selling writer, Michael Lewis with research related to the mortgage crash. This became a part of his best-selling book turned movie, Liar’s Poker. Michael wrote in the book “all roads led to Ivy.”  

Her convictions have been recognized by Institutional Investor ranking her as one of the most preeminent figures within the housing industry. Most notably, Institutional Investors - America Research Team rankings placed Ivy and her team with eleven 1st place rankings (1999 – 2004, 2006 – 2007 and 2010 – 2013). Additionally, Hanley Wood, a leading real estate media firm, ranked Ivy as 14th of the Top 50 most influential persons in housing. In 2020, Ivy was included in Barron's Top 100 Women in U.S. Finance.


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Adam Hooper (00:00):
All opinions expressed by Adam, Tyler and podcast guest are solely their own opinions, and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only, it should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisors.

Ivy Zelman (00:22):
People are not only living longer but they're staying in their single-family asset longer, we don't have a flood of supply risk, in our opinion, for at least the next two decades.

Ivy Zelman (00:44):

Adam Hooper (00:44):
Hey, Tyler.

Tyler Stewart (00:45):
Hey, Adam, how are you today?

Adam Hooper (00:47):
Tyler, I'm good, it's been a little bit since we've been in the studio, it's back together on the mics and we got another great episode teed up today.

Tyler Stewart (00:54):
We do, we have the legendary, Ivy Zelman, CEO of Zelman & Associates. She's famous for calling the top of the market, in 2005, she called the bottom of the market, in 2012, and her research team has been named the top research firm, 11 times, by Institutional Investor.

Adam Hooper (01:14):
Yeah. Awesome to have, Ivy, back on today. As most of you listeners know, we had her on a while back, talked about the state of the residential market, some of the things that they track, we thought it was good to have a fresh take on what's going on in the current crisis, how that might impact some of their outlooks. She made a few predictions on where we're going to see appreciation this year or maybe not, I'm not going to give away too much, you got to listen to it to hear all of it. But, again, just a really, really good, in-depth conversation on the fundamentals of where the housing market is, right now, from a single-family perspective.

Tyler Stewart (01:48):
Yeah. And she talked about current homeowners, as well, and the things they're doing, right now, to accommodate remote work, gyms in their own homes.

Adam Hooper (01:55):
Yeah. And a consistent theme that we've been talking about too is, how much of this crisis is more of an accelerant of some underlying trends, versus uncovering or shaking up some things that we maybe weren't already seeing before, pretty interesting conversation around that. Talked a little bit more about what she calls the great shuffle, we got into some boomers versus millennials and we covered all types of topics. And, also, I think it was interesting at the end too, we talked about some of the risks to the housing market, going forward, which I think are good to listen for and some things to keep an eye on, as everything progresses.

Adam Hooper (02:31):
And check the show notes too, at the end, we talked about a virtual summit that Zelman & Associates is putting on. If you mention RealCrowd, when you sign up for that, you get a pretty substantial discount. Check the show notes, it should be a pretty great program, and there was a few links in there, as well, to sign up for some of their content and newsletters, that Zelman & Associates put out. Hopefully you can click on those and take advantage of that pretty generous offer, to be a part of that virtual summit. But I think that's enough of us talking, if you have any questions or comments, as always, please send us a note to and with that, let's get to it.

Adam Hooper (03:09):

Adam Hooper (03:20):
Well, Ivy, thank you so much for coming back on the show, it's been a while since we caught up, the world has certainly changed a little bit since then and we're excited to get in the conversation and hear what you've got to say.

Ivy Zelman (03:32):
Thanks for having me, it's great to be back on your show.

Adam Hooper (03:35):
Before we jump in, we might take just a minute or two and refresh listeners, Zelman & Associates, some of the reporting that you guys do and maybe some of the clients that you typically work with, to set the stage for the conversation.

Ivy Zelman (03:49):
Sure. Zelman & Associates is a independent research boutique, focused exclusively on housing. And we do a lot of deep dive, thematic work and do proprietary surveys, across the housing ecosystem, anything within the housing ecosystem is really what we're focused on. And we have about, roughly, a thousand C-suite executives that we've aggregated over my 30-year career, that we're exchanging information with to understand boots on the ground, what's happening in respective silos.

Ivy Zelman (04:22):
We're utilizing that platform to really differentiate and give us an edge, and keep us ahead of the curve on what's happening. And we also do a lot of demographic work and data aggregation, on everything to do with the space. I'll stop there but we service, predominantly, institutional investors as well as private equity. And we also service corporate America, our net is quite large in terms of who we're casting, we're providing research to.

Adam Hooper (04:52):
Good and now, well, past performance is no predictor of future results. You guys have had a pretty good track record in calling some… You make some pretty big calls, historically, and that's proven to be pretty spot-on with your past. What are some of the, maybe prior, things that you guys were looking at that were maybe missed by other participants and analysts? And where are we at right now, I mean, is this echoing any of your prior research or things that you've seen, historically, that we see today?

Ivy Zelman (05:25):
Well, actually, we thank you for that preamble but we actually did call the top of the market in 2005, when we were very concerned about the level of exuberance in the market, being driven by really exotic mortgage products and investors, generally, in the market that were driving up home prices to really reduce affordability. We also called the bottom in 2012 and, fortunately, it was the beginning of the recovery, albeit the recovery's been very different.

Ivy Zelman (05:58):
And we did some things along the way, which I won't go into a lot of detail, but one, for example, was pounding the table that, "Builders, if you build it, they will come," and telling builders to build more affordable product in the more tertiary markets. And really how, "You're the prettiest girl at the dance, if you're building entry-level." And it's been, overtly, really up the recovery only the last three to four years, in earnest, the builders have really been going after it aggressively.

Ivy Zelman (06:24):
Fast forward to where we are, in the midst of this pandemic. And it's been somewhat of a remarkable recovery and relative to our initial expectations, we recognize that the fundamental backdrop was very favorable, prior to the pandemic, with really the inventory in the United States at an all-time record low. And that really gave us more conviction that whatever downturn we'd experience, if it wasn't housing-led, that it would be a much more muted type of housing impact, relative to other types of housing-led downturns. And therefore, when the pandemic came to fruition, we thought it would be a quarter with the economy shutdown, we would see housing go down pretty substantially and then slowly recover for the next, call it, three to four quarters before troughing.

Ivy Zelman (07:16):
But through our survey network and the demographics that were also very favorable, what we saw very quickly was, as the economy was opening up, the overall new home market, which was deemed essential, started seeing some pretty dramatic improvement, went from down 40%-50%, let's say, in new home sells in second half March into first half of April. And then the second half of April was down in that 20% range to 25% range, with some builders even indicating that they were seeing down 10% or even flat, in the second half of April, which we were really surprised by. But then, fast forward to May, sales were up 33% and June and July were both up 60%, 61%.

Ivy Zelman (08:04):
It's been nothing short of a complete V and now surpassed the strength that we saw in January and February. And it's pretty similar in the resale market, numbers-wise, it's different but in terms of the actual recovery, it took a little bit longer on the resale, to accelerate and show the type of robust recovery. I'm happy to take a breath and tell you why, certainly, it's defying all of what you would have expected, but I will take a breath and see if you have a question.

Adam Hooper (08:35):
No, I think it's fascinating and I remember when we spoke last, you were still very bullish on single-family, just based on some of the underlying supply and demand issues. And it seems like that's proven to be giving resilience to the housing market where, maybe we would've thought it would've been hit heavier than it has been, thus far.

Ivy Zelman (08:58):
Well, it was certainly the dynamics of inventories, with supply so constrained, but we also have such an incredible, favorable backdrop on the demographics. If you just look at the typical family that is starting to have more than one or two children, they need more space. And they tend to… Lifestyle decisions will drive them from, let's say, a multifamily shelter to single-family. In fact, our data shows that for those households between the ages of 25 and 39, that have two or more children, that are married or cohabitate, 82% live in a single-family home and not necessarily owning it, because we know 15 million rent, but I think that, that's very powerful.

Ivy Zelman (09:45):
We look at those people that are aged between 35 and 44, and you look at where the absolute population growth is going and absolute numbers. And from 2020 to 2030, it's on a very sharp, upward trajectory, we will see something in order of magnitude of six plus million more people, in that age cohort. And when you think about millennials and, right now, in their mid to late-30s, they're the ones that are typically really starting families. That's a tailwind for the single-family that was present, prior to the pandemic, and it's still obviously very much a powerful backdrop. We also had very favorable mortgage rates and reasonable affordability but, with the pandemic, what you have are people that are holed up in their homes and they've been in their homes longer than any other point in their lives, where they're having to stay home and really look around at their homes and think about where do they really want to be.

Ivy Zelman (10:44):
Couple that with remote work that became somewhat forced upon us, where you can work remotely. And now it's being discussed with many employers to provide longer-term optionality, flexibility that people could actually work further from their jobs and not have as long a commute. That's a significant sea change that's really started, call it, the great shuffle, moving people from dense, urban core markets to more suburban, excerpt type locations, knowing that they may not have as much of a commute time. Not to mention, of course, the social unrest and increasing crime rates in densely populated cities.

Ivy Zelman (11:27):
We're definitely seeing migration from cities, whether it's New York, Chicago, LA, the Bay Area, that's really been fueling this V-shape recovery. But we've also had very substantial growth in population in some of the fastest growing markets like Utah, Idaho, thinking about Nevada, Arizona, we're double-digit population growth from 2010 to 2020. Whereas, you have high-cost markets, whether it's New Jersey, New York, Connecticut, Pennsylvania and areas like California that have seen much more languish, in terms of population growth from 2010 to 2020.

Ivy Zelman (12:13):
That's, now, likely to be on steroids because you have high-cost markets where people could decide, "You know what? I'm going to pick up my family and leave New York or Chicago, and I'm going to go live in Austin or in Nashville or somewhere in Florida. And I could be in more favorable climates and have more affordability and lower taxes." All of that, in the post-pandemic world, have really shifted people's perspectives and they're all focused, their home is their castle. And they're really putting their wallet towards their home and savings towards down payment, it's been a remarkable recovery, it really has.

Adam Hooper (12:53):
And one of the things we've talked about a bit is, whether or not the current crisis that we're in, is it more of an accelerant of some of these trends that were already nascent or starting to pick up steam? Has this crisis just accelerated those trends that are underlying or are they disrupting or creating some new shifts and changes, in how the future might look? How have you seen this current crisis, is it more of an accelerant or are there some areas that you're seeing some disruption of prior trends or new things, that are emerging from where we're at right now?

Ivy Zelman (13:27):
I'd say, generally, it's more of an accelerant because we did see the shift in terms of people leaving more densely populated markets, to more suburban, excerpt markets, starting really in 2016. And we actually do something called, we call it a GDI, it's short for Geo Dynamic Index. And we look at densely populated markets at a hundred and zero being no density, and you can imagine New York city being at the high-end of that index versus, let's say, a rule market at zero, out in the tertiary areas.

Ivy Zelman (14:01):
And when you look at the number of people that actually are in 10 or less, it has increased pretty dramatically in terms of single-family permits to, call it, about 43% from just about 35%, in 2011. And that didn't happen overnight, it's been a shift and we're seeing that phenomenon now accelerate. On the flip side the, maybe, dynamic that's changing is that, prior to the pandemic, the strength of the market was pretty much focused on entry-level and first-time move up. And we also saw very strong, overall, areas of, let's say, rental within the densely populated markets, we were still seeing pretty attractive overall fundamentals in the rental market.

Ivy Zelman (14:52):
What changed now, with the pandemic, is that the move-up market that had languished to, call it, a second time move-up luxury in suburbia, has actually really just accelerated and the decision to have a discretionary upgrade, now, has actually been improving. Whereas, prior to that, I'd say the trend has been that consumers have been aging in place and choosing not to make that decision to upgrade.

Ivy Zelman (15:22):
And I don't know if that's a function of rates have fallen pretty significantly, whereas prior to the pandemic, maybe they had locked in a low rate or they didn't have enough equity, or there just wasn't the catalyst for them to move. But the move-up market has really been the big shift in terms of how strong it is, right now, post-pandemic. And relative to the overall strength of the market, which was pretty flat to even pressured, pre pandemic. Which we titled, A Tale of Two Markets, which we wrote quite a bit about.

Adam Hooper (15:56):
Yeah. I have to imagine a lot of that, I mean, all these combinations going into that effect. But I would have to imagine a large part of it, I mean, just look at ourselves, right? Three kids, we know we're in remote school through at least November, working from home, trying to figure out where the heck we all fit. That causes… That's a pretty big disruption to how we had all thought that a home would serve its functions, right?

Ivy Zelman (16:21):

Adam Hooper (16:22):
I think that that has to play a part in that, like you said, that discretionary upgrade which is maybe, again, something new that this is pushing as we sit in our homes all day, trying to think about how do we actually use that space and what do we need from it?

Ivy Zelman (16:36):
And people are focused on whether it's for their children, online learning areas that they should re-structure the house, the floor plan, or they're just not able to accommodate what would be remote work for themselves and then online learning. But they're looking at homes that are more expensive because they can afford more, with rates lower. And they might have some stimulus dollars that they've gotten, whatever it may be, higher unemployment benefits for, maybe, one spouse, more savings because they're not spending on entertainment and travel and restaurants and going to sporting events or concerts.

Ivy Zelman (17:14):
All that money is really focused on the home and people want outdoor space, they want higher-quality space for, maybe, nesting in their homes. Whether it's in home movie theaters, they are looking for even space for elderly parents or in-laws because they don't necessarily want them to have to go to a nursing home, they want a separate suite for, possibly, their parents and, again, and/or other family members.

Ivy Zelman (17:44):
There's a lot of things, people want pools, they want it all because they recognize that we might be stuck in our homes the next year and a half, and we don't want to stay in this current home we're in. Or they're doing significant repair and remodeling because they are unable to find a home, because it's pretty competitive out there.

Adam Hooper (18:03):
Yeah. We definitely want to touch on that, we're rebuilding our deck right now and the price of lumber has gone insane. Actually, I was talking, just the other day, with a lumber broker here in Portland. He said their numbers, they almost doubled their prior high in June and then blew through that in July, just with volume. How have construction costs and hard good prices factored into this? I mean, it seems like it's just gone through the roof, right?

Ivy Zelman (18:32):
Absolutely, and if you listen to Home Depot and Lowe's, that reported earnings this week, I mean, they had comps that were up 25%, 30% plus. And there's no question that lumber was a big part of that and when you think about people doing projects, I think Home Depot mentioned that outdoor decking was definitely one of the biggest categories, along with lawn and garden and lawn mowers and people are just spending a lot more time outside. It's a combination of the housing market now accelerating and lumber prices today, I think the news showed that the builders, the NAHB, is asking for the administration to put some type of tariff on Canadian lumber, because the problem is so substantial.

Ivy Zelman (19:18):
And I would just say that small builders are definitely more negatively impacted than the largest builders, that have scale advantages. But the current pace of home price appreciation is, it basically is offsetting a lot of that pressure. Other building products, we haven't seen much inflation at this point but we're envisioning that we will, and there will be also areas where there'll be elongated on cycle time, because of products that are out of stock. We hear, for example, appliances like GE appliances, or they can't get a garage opener or something as simple as, not even being able to get lumber. There is no question that cycle times will be extended and there is likely to be inflation, which could offset some of the benefits of home price appreciation that we're seeing.

Adam Hooper (20:12):
And how much of that is due to more of the supply chain disruption versus just, it can be because everybody's spending all day, every day, in their houses, they got to do something, right? Do you have insights into what's causing those increases, that just makes it everything again?

Ivy Zelman (20:31):
Well, like in some cases, it's interesting because it's a little bit of everything. But one of the things cited, we just published our building product survey which we aggregate over a hundred billion in revenues, from manufacturers and distributors and retailers. And one of the common complaints that was elongating cycle times was absenteeism, As they are having a hard time getting workers to come back to work and therefore that's their biggest challenge, as it relates to getting product produced. As you mentioned, it's a combination of all the other things that you highlighted but I do think absenteeism is a big problem in the market.

Adam Hooper (21:09):
And you mentioned that the housing price appreciation, so far, seems like that's offsetting some of this increasing construction costs. How do you see that playing out? Is this, again, with rates being just insanely low, historically, and we thought we were low a year ago? But now, I mean, again, I think we got a quote the other day at 2.875, with no points, for a 30-year mortgage product, which is just crazy.

Ivy Zelman (21:36):
Yeah. Great.

Adam Hooper (21:37):
I mean, that certainly props up home values, if we get into more inflationary times, if those rates start going back up, do you think the supply constraints will keep prices up or how do you see that appreciation going forward?

Ivy Zelman (21:52):
I think it's very sensitive to rates. I think that rates, right now, given how low they are, it really solves a lot of the problems because there's really ability for offsetting the higher costs associated with homes, that they might be purchasing. I think if rates were to go up a hundred basis points, I think it would be a very significant headwind and I think we'd see home prices will decelerate. And currently, we're forecasting home prices to increase 3% this year, followed by 4% for '21 and '22, roughly. But our bias for this year is actually the upside, given the strength that we're seeing. But I would say that if rates were to go up, it would absolutely change our outlook and we would be more cautious.

Adam Hooper (22:38):
Yeah. And now I want to go back a little bit to demographics that you mentioned. It sounds like the core demographic trend of a lot of millennials coming into positions where they would be moving out of the apartments, into single-family houses. Something that's always been talked about and I'm curious to get your take on it is, the boomers downsizing. Has this trend of, again, spending so much time in our house, maybe people coming back, living with family, do you think that will have an impact on the downsizing? Or where are you seeing any dynamics there with an older generation, from a demographic perspective?

Ivy Zelman (23:14):
Well, just to add onto the initial data I provided, the 35 to 44 cohort, just so you know, the 20 to 34 cohort had been growing even during the great housing bust and was on a very, very steep, upward trajectory. By the end of the decade, it's been on a downward trajectory and by the end of 2030, it would actually be negative. From 2020 to 2030, it will be, roughly call it, flattish at 67 million but it will turn negative at the end of the decade.

Ivy Zelman (23:44):
And what's interesting is, just looking at the boomers, the boomers are actually more important in many ways than even the millennials. Because that, roughly 75 million boomers, which is roughly the same size as millennials, what people don't realize is that the increase for the boomers, from their prior generation, was a 53% increase whereas millennials were an increase, from their prior generation, of 14%. When you just look at the rate of change for boomers, whatever decisions they make in their life and lifestyle decisions and changes in shelter, are even more impactful. With that backdrop, I would say that boomers, as they'd been aging in place, it's been a headwind for inventory availability and one of the explanations as to why inventories have been so tight.

Ivy Zelman (24:38):
For example, if you're 22, call it 24 years old, any given year, 53% of those people will move in a given year. If you're 50 to 54, which is my cohort, I won't tell you where I am in that cohort but in the 50 to 54 cohort, 9% of people in a given year will move and the older we get, that number goes down. And what you're seeing is, you hear a lot about boomers downsizing and what I would just attribute that to is, certainly, a trend that was somewhat… It's a real trend but the numbers were fairly negligible. And why were they negligible? Think about selling your home in the suburbs and moving down to a city where you can enjoy the nightlife, it's pretty expensive to be in cities and you're away from your grandchildren, and people didn't have enough equity to do so.

Ivy Zelman (25:32):
And so there was that trend but people really were more aging in place. And what's interesting and what's asked a lot is, at what point do the, let's say, senior cohort start either exiting to assisted living or other shelter, living with relatives? When do we see this flood of supply that will impact the market? And what people don't appreciate is that, as life longevity continues to extend, people that are in their 80s are still living in single-family home, if they're able. My in-laws are 84 and 85 and they still live in their home in Beachwood, Ohio, and my mother and father both live in their respective homes and they're in their late 70s.

Ivy Zelman (26:17):
I think that people are not only living longer but they're staying in their single-family asset longer, we don't have a flood of supply risk, in our opinion, for at least the next two decades, it's really probably more of a 2050 issue. I don't know, maybe you didn't even ask me that question, I've gone offtrack a little bit but I'll stop there and see if it generates any questions for you.

Adam Hooper (26:41):
I'm curious. And, again, one of the things that we've talked about quite a bit on the show is, what are some of the longer-term changes that this crisis that we're in, currently, are going to stick? With the experiments, right? Whether it's rethinking how we use the space in our house, what we need in a house, this migration away from urban cores and combining all that with our relatively short memory, as humans? What are some of the factors that you think we're seeing today, that might be longer-term? Just shifts in how we think about single-family and housing and shelter, versus some that maybe are a little bit more short-lived and will revert quickly back to the way things were before?

Ivy Zelman (27:24):
Well, one of the silver linings for at least the industry that I've seen is, this technological offering to provide consumers just less friction. Builders today are selling completely virtual, in some cases, where people can go online, do self tours, have someone do a tour with them if they want, virtually, they can even buy homes and do everything online and buy home site on scene. I think that with technology today, some builders hadn't made the investments and then quickly scrambled to make the investments while others were way ahead of the curve. You're seeing the same phenomena in the single-family rental market, where people can do virtual leasing. I think there's a lot of technological capabilities that will stick, and maybe even continue to expand as smart homes are definitely more prevalent today and, strategically, investments are being made by builders and operators, that's one thing.

Ivy Zelman (28:35):
In terms of how people view their homes, I tend to think that people will revert back to normal as soon as they can start to do things that they used to do. I don't know that remote work is probably the only thing that could really be a sea change, in terms of more people providing them flexibility. I've been working remote, in fact, in 2017, roughly 5% of people worked remote in the United States. And that's the last data point that I have that's reliable, and that was for population of MSAs that we're more than 3 million. I think the ones that were between a million to 3 million were also, roughly, 5%.

Ivy Zelman (29:21):
I think that working remote is something that could require that more people have home offices, I think that's something that will stick. But as it relates to… Your home's always your castle but will people prioritize it over vacations and travel and entertainment, and things that they used to always do? I think they probably would go back to normal, in most cases, I think.

Adam Hooper (29:49):
Yeah, and you mentioned a couple of markets that you're seeing some of those brighter spots. You mentioned Utah, I mean, we've heard a lot about Austin and some of the more, I guess, knowledge-based economies have held up pretty well and are the recipient of some of that urban migration. Where are some of the markets that you guys are seeing as bright spots or, I guess, more than that, what are some of the fundamentals that you see in markets that are experiencing that, right? What are some of those drivers that make those markets more attractive than others, as the beneficiaries of this great shuffling?

Ivy Zelman (30:25):
Well, the great shuffle was already underway in that we were already seeing a lot of those states, from 2010 to 2020, with double-digit population growth rates. And now we're just seeing that trend continue and I think a lot of that is, the winners are, from a favorable climate perspective, more affordable markets. I remember being in Denver with a number of industry contacts, having a round table discussing how Denver was one of the most expensive markets and an absolute sense, as compared to other MSAs and also relative to its own history. And one of the builders said to me, "Yeah, but if you compare us to California, we look pretty attractive."

Ivy Zelman (31:09):
And when you start to compare the Bay Area and LA to surrounding markets, whether it's Phoenix or it's Las Vegas, or it's Denver, or it's Boise and it's Austin or it's New Mexico, in Santa Fe, there's a lot of people that… Especially in California right now, in California, between what's being proposed and right now, what's in the house, is a significant tax increase. Personal income tax was already the highest and they're also talking about a wealth tax that, if it was to go through, I mean, it's like telling people to pack up and leave.

Ivy Zelman (31:45):
But I think what we look at are also what, in the pandemic, would be high-risk industries versus low-risk industries, being more pandemic-specific, the obvious, hospitality and travel. But, to your point, industries that are growing, that are doing really well, whether you're talking technological areas in the economy as well as healthcare and areas pre-pandemic, private education. I'd say that what we see is, really, taxes being a big factor. When the Trump Tax Reform Act, in 2018, when they eliminated the ability to deduct more than $10,000 on property taxes as part of SALT, you think about markets in the tri-state area. For someone who owns what's considered, "Affordable home," a million dollars, you're talking about a $20,000 property taxes, roughly, and now you can't deduct all of that.

Ivy Zelman (32:48):
I don't know that people are picking up families and moving because of that alone, because they are in a community, their kids go to school. But now with remote work and the ability to move to a more attractive climate and more affordable, I think those types of things are going to accelerate what we've already been seeing, is this migration and great shuffle.

Adam Hooper (33:10):
And another one of those tax issues is, how are some of the city States going to react to this crisis, right? With the potential loss in tax revenue and just the financial picture that, I think, a lot of areas are going to find themselves in. How is that going to reflect in these real estate tax rates and what does that mean for some of those decisions, going forward? Maybe more so on the commercial side than on the single-family side of it but, that's the other thing we're seeing out there too.

Ivy Zelman (33:37):
Well, interestingly, the PITA tax or PITA tax, I can't even say, the PITA tax in New York is now back on the docket, which is a mansion tax. And what I would say is that it's just funny because all these states that are in need of revenue, all they need to do is legalize marijuana, at the federal level, and they'll all make a ton of money, in my opinion.

Adam Hooper (34:02):
Yeah. We're seeing it, I mean, it's certainly starting and I think, again, obviously Oregon is one of the earlier ones too and there's a ton of tax revenue from it, we'll see how that goes. It sounds like higher-risk economies, maybe, are seeing some more out migration. And metros, I mean, again, everything that makes a metro so great in the good times is what makes it so concerning right now, in this current health crisis. Are there any other major factors that you're seeing as, maybe, more current crisis-related drivers of that outward migration?

Ivy Zelman (34:41):
Well, let me just clarify for a moment because a place like Las Vegas or Orlando, which are really hit hard by the pandemic, we're not seeing outbound migration out of those markets. And despite the pandemic and actually the resurgence in cases, those housing markets are actually doing pretty well, in the for-sale market, which has been just, I think, frankly, shocking that they've been doing well. And I was-

Adam Hooper (35:04):
Is that new people coming in or moving within? What is driving that, do you think?

Ivy Zelman (35:10):
It's tough to know and even builders that provide us that information would say, generally, it's not different than it was prior to the pandemic, in terms of the type of buyers. One interesting stat, I was chatting with a builder late last week and he's in more of the mountain states and in California. And he indicated that, "How long will single people really be comfortable living out in the burbs, once the pandemic's behind us? Because they're buying," and I said, "Single people are buying?" He said, "Yeah." Because I would've thought it was just married couples that are planning families and he says, "No, our normal number of single people is," call it, "5% and they build a few thousand homes a year and it's currently 15%."

Adam Hooper (35:55):

Ivy Zelman (35:56):
I found that really to be quite surprising but I just want to make sure to clarify that, what you're seeing in some cases, like people living in the Bay Area are moving out to Sacramento or they're in LA and they're moving to the Inland Empire, and not to say they aren't leaving the state altogether. But it's not necessarily everybody going out of the state but in those industries or states, that have metropolitan markets that were hard-hit by the pandemic, that are in favorable climates and that are in high growth mode. We have not seen what you would expect from the pandemic with respect to the for-sale market, it's actually been very resilient.

Adam Hooper (36:38):
And now, going forward, we talked about some of the risks to the market and we talked about the debt markets, financing side of things. What are some of the risks that you're seeing to the housing market both from, again, current crisis-related or, again, some of those prior trends? Are there any new risks that you guys are seeing out there or have some of the prior concerns gone away? Where do you see some of those challenges, I guess, going forward?

Ivy Zelman (37:11):
Well, I would say that we have concern around affordability because builders, today, are definitely stepping on the gas to raise prices. And you're seeing bidding wars in the resale market, with inventory so tight. And affordability, while still currently reasonable, I think builders are so overwhelmed with demand that they're starting to mete out product. And they're doing so because they don't want to run out of land and they don't want to off their customers in backlog, if they can't build the home in the timeframe that they promised. If we keep pushing on price and then all of a sudden something like a vaccine comes to fruition, and we are seeing improvement in the economy because there's no more of this deathly fear, and rate's back up very quickly, we can easily see the market turn on a dime.

Ivy Zelman (38:05):
I would say it's a very fragile market to assume that it would be sustained if you started to change a few of the levers, and price is, obviously, a lever and rates are a lever. The other issue is that we've had this great Band-Aid, call it, or maybe more of an analogy to a sick patient that's getting medication. We've had stimulus that's really covered up a lot of the… Masking a lot of issues. And how long can we keep getting stimulus? Because there are consumers that are in forbearance today, and there are renters that are not making rent payments, and that's with stimulus, that's with higher unemployment benefits.

Ivy Zelman (38:49):
As of July 31st, when they eliminated the $600 a week, and I'm sure that they're going to come up with a new package, it might not be as significant. We're already seeing challenges with rental collections or forbearance, it just feels like, with the election coming and stimulus-dependent, at some point you stopped giving a sick patient, that's going to die at some point, the medicine or you ripped the Band-Aid off, however you want to call it, and you're going to have to deal with the carnage.

Ivy Zelman (39:21):
The only saving grace for the for-sale market is that, even if people were in a situation where the forbearance period ends, because the forbearance works, basically, assuming it's a government mortgage or a Fannie-Freddie, they basically can get up to 12 months of forbearance. And at the end of that period, they can tack the missed payments onto the backend of the loan, extend the duration but not increase their monthly payments. But if they can't get a job, if they haven't gotten a job, they're not going to be able to make any payments and then they wind up going down the path of being forced to sell their home.

Ivy Zelman (39:58):
But because there's a lot of equity in the market, excluding those that did a 100% LTVs, which VA offers a 100% LTV and FHA, where there's only 3.5% down in USDA, which also has a 100% LTV, you could start seeing some foreclosures hit the market but I don't think it would be enough to really hurt an MSA, because the inventories are so tight. But I worry a lot about the rental side of the market, from the multifamily side, that stimulus has been masking their challenges, with rent collection already problematic before the stimulus was gone, with a few hundred basis points of a reduction in collections.

Adam Hooper (40:43):
Yeah, we track the NMHC rental tracker, we put that on our newsletter every Friday. And I think I checked this morning and as of the 13th, I think it was down about 200 basis points from August of last year at this point. And generally, I would say most are thinking August will probably be the last month that it's going to track that closely. Because, I mean, again, depending on what comes out of stimulus, right?

Ivy Zelman (41:07):

Adam Hooper (41:08):
If that $600 a week benefit does not come back, that probably will carry over into August from those payments that folks got in July, at the end, before that went away. We'll see what September looks like if that doesn't come back in some form or fashion.

Ivy Zelman (41:25):
And I assume you saw the Fannie-Freddie FHA just announced that, they're going to extend for any properties that they financed. They will extend the moratorium on eviction, they just announced that today. That's not good for landlords, just to throw in another challenge for them, that they'll be contending with.

Adam Hooper (41:50):
Yeah, I also saw there's now a 50 basis point, I think it might just be on refinances, that Fannie-Freddie are including a 50 basis point fee which is basically, "We need to build our coffers up," was how that was explained, as that.

Ivy Zelman (42:06):
A little bit funny that as they start to see a very significant gain on sale margins or just overall profitability that's at record levels. But I would point out, from a refi perspective, that it's roughly a 14 basis point increase to the consumer, assuming they pass it along. But lenders, unfortunately, that are locked between now and September 1st, when it gets implemented, they're going to have to pay the difference, assuming that they can't pass that along to the consumers that are locked. And that's one thing, that there's a big uproar and backlash coming from the industry, but we'll see if they reverse it. But as of right now, it's a headwind but I think refis are still attractive, assuming rates stay low and it's roughly that 14 basis point hit.

Adam Hooper (42:54):
It sounds like, overall, Ivy, you are still bullish on the single-family market?

Ivy Zelman (43:00):
I am definitely constructive on the single-family market but I'm not complacent, I think that we're expecting that 2021, with the strength that we're seeing right now, is not going to be able to show growth. And if we're talking about just looking at new home sells or pending contracts, and we're comping up against 30%, 60% growth rates. I think what we realize is, if you stack the two years together, they could still be relatively positive and housing could be a relative winner, in a very battered economy. But I don't expect that the growth rates we're seeing right now are sustainable, and I think that the faster you run and driving around dangerous curve, at 150 miles an hour, it never ends well.

Ivy Zelman (43:48):
And it feels like we're, right now, at growth rates that are just not sustainable and there's going to be some type of backlash or we'll be giving that back in 2021. And the magnitude, again, is somewhat contingent on what the variables are. I'm just trying to be realistic and you could still be constructive on the fundamentals, our job is to recommend stocks to invest in and stocks that are, attractively, a position.

Ivy Zelman (44:18):
I think that, right now, with the current momentum, we've been more constructive on single-family, for-sale and the new home builder constructions channel whereas we've been negative with almost all sell ratings on multifamily. The bigger question is, when things start to slow, will we still like the stocks? And that's what we've got to figure out. Different than fundamentals, which we still think are favorable even if '21 has to give back some of the strengths of '20, it still would be a favorable fundamental backdrop.

Adam Hooper (44:52):
And outside of subscribing and reading your material, are there other resources or indicators that listeners could be paying attention to? Or might be a few metrics, two or three metrics that should be of note for folks that are trying to keep tabs on what's going on out there?

Ivy Zelman (45:13):
Well, actually, if they go to our website, they can request access and get, with no cost, free access to our newsletter as well as our blog. And we actually are hosting a virtual housing summit the week of September 21st, which if they mentioned that they heard about that on RealCrowd, we'll give them the friends and family discount, and that's a third of what the normal cost is. That's available but in terms of metrics to watch, it's all about inventories and rates. We've got to really be laser-focused on what the 10-year yield is doing and what spreads are doing.

Ivy Zelman (45:56):
Just to give the listeners a little clarification, the 30-year fixed mortgage rate is priced off the 10-year yield and the 10-year yield, right now, is hovering around at 0.66, this morning. And if you look at, typically, what the spread normally is, it's about 1.7 or 170 basis points over the tenure. But because of the just unbelievable demand in refis and a lack of capacity and availability, despite massive hiring right now that the lenders are doing, spreads are in the 230, 240 range, they were as high as 270, at the beginning of the pandemic.

Ivy Zelman (46:36):
We watch the tenure more than we watch the equities because we recognize that, that's the driver. If you're an investor and you're in the space and you start to see that the refis are slowing, the positive might be because of that 50 basis point fee, is that those that have been so busy with refis, they might start focusing on purchase, making it more competitive so spreads could compress. Rather than the 230, 240 spread it's currently at, it can compress and if it got back to normal, which is unlikely but let's just say theoretically, if it got back to 170, you'd be looking at a 2.3, 2.4, 30-year fixed mortgage rate. We're watching that carefully but we're also watching to see if the 10-year yield is backing up and seeing if that becomes problematic for overall demand. Those are things, hopefully, that's a lot to absorb but I hope to have people visiting the website and joining us for our virtual housing summit.

Adam Hooper (47:39):
Absolutely, and we'll put links to both your website and where they can sign up for that summit, in the show notes. Would recommend everybody check that out and, again, you guys put out a ton of great content. And any fun? We've always loved how you've titled your reports, any new papers coming out with some fun names?

Ivy Zelman (47:58):
Oh goodness. I'm trying to think if we had anything of interest by the way. We just had how housing takes center stage, was one of the latest white papers I just published which really is a very significant, thorough primer on everything about what's going on, from the last cycle to this cycle. But I'm sure there's some other fun ones, I'm just having a brain freeze, sorry.

Adam Hooper (48:20):
Yeah. We'll keep watching and I'm sure there's some more good stuff to come.

Ivy Zelman (48:23):
Fantastic. Thank you so much for having me.

Adam Hooper (48:26):
Anything, we didn't touch on that you want to get in there before we let you go?

Ivy Zelman (48:32):
I would just say that we are also watching international buyers which, of course, the pandemic has pretty much halted and that had been a positive driver. But what we didn't talk about was really the number of innovators and disruptors in the market. The startups that are still moving forward, the iBuyers are back in business, there's a lot of different types of ways to try to improve consumers' experience. I'm surprised that the startups are… I'm sure some of them are going out of business but there's still a lot of various projects that are underway, to providing consumers experiences.

Ivy Zelman (49:13):
I met one company that allows people to sell their home, get the cash, and then just be a tenant and lease. Which I think is attractive and apparently at better lease rates than they would find, in a single-family rental situation. We always keep watching what's interesting and what's helpful to consumers and reducing friction, there's a few interesting platforms out there right now, those are just the things we like.

Adam Hooper (49:41):
Yeah, the iBuyer comment is interesting, that's always been one to watch and there's definitely room for innovation in a lot of the processes and interfaces, with how people interact with real estate. And we talked more so in the commercial space but there's definitely a lot going on in the single-family space too, from a technology perspective, which I think will be good, right? Anytime you can bring more efficiency and transparency, that should be a good thing.

Ivy Zelman (50:09):

Adam Hooper (50:10):
Perfect. Well, Ivy, thank you so much for coming on again today, always a pleasure to have you on and, again, listeners, be sure to check those show notes for all those links.

Ivy Zelman (50:19):
Great, thank you so much for having me. Have a great day, everybody.

Adam Hooper (50:21):
Thanks, you too. And, listeners, as always, if you have any comments or feedback, please send us a note to and with that, we'll catch you on the next one.

Adam Hooper (50:30):

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