Episode summary
Housing Weakness is spreading to luxury buyers | Ivy Zelman
Wealthion
· · 40 min · Hosts: Maggie Lake · Guests: Ivy Zelman, Trey Reik
Summary
Housing is weakening beyond the entry-level market, with the guest arguing that higher mortgage rates and affordability pressures are now hitting luxury, second-home, and active-adult buyers too. She says the September homebuilder survey was among the weakest on record and that the industry has effectively been in a flat market for five years, with buydowns, incentives, and faster-spec sales becoming harder to sustain as rates remain above 7%.
The guest rejects the idea that the U.S. has a housing shortage. Instead, she argues that demographics are turning less favorable: births are below replacement, immigration is constrained, and household formation is slowing. She expects fewer housing starts over time, more pressure on land prices, and lower returns for land bankers and private equity investors tied to land strategies. She also says the market is more likely to grind lower than to suffer a 2008-style crash because mortgage underwriting is much tighter.
A second analyst widens the lens to the macro backdrop, arguing that debt, Treasury financing costs, and stress in sovereign markets make further Fed hikes unlikely. He says long rates are unlikely to rise much further, sees gold as relatively resilient, and thinks investors should watch whether rate-hike expectations keep falling.
Key takeaways
- The guest says housing weakness has spread from entry-level buyers to luxury and move-up segments as rates above 7% squeeze affordability.
- She argues the U.S. is not facing a housing shortage and expects slower household formation to reduce future demand for new homes.
- She says land prices need to reset, which would pressure returns for land bankers and private-equity investors exposed to land.
- The guest thinks the market is headed for a prolonged slowdown, not a 2008-style housing crisis, because mortgage lending is much tighter now.
- The analyst says U.S. debt and funding pressures make another Fed hike less likely and keep long rates from rising much further.
Notable quotes
“We believe that we're not in a housing shortage and we will start to see a lot less need for housing supply”
“So, buy downs are expensive though. So, if you want to buy a rate down 250 basis points, that's going to be nearly 900 basis point negative impact or gross margin”
“by 2030, more people in this country will be born. More people in this country will die than are born”
How the episode opens
We really have seen since rates spiked another leg down. We believe that we're not in a housing shortage and we will start to see a lot less need for housing supply. I feel like the housing industry is the redheaded stepchild and has been left for dead. Here with us to discuss the outlook for housing is Ivy Zelman, co-founder of Zelman, a Walker and Dunlop company. Ivy, great to have you back on with us.
Oh, thanks for having me, Maggie. So, what what are we looking at when it comes to housing? I I'm hearing some concerns. I think we've been seeing some weak data come through, although a little bit mixed. What are you seeing just generally about in terms of what kind of shape the housing markets in?
Well, I think unfortunately 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 and pretty um disappointing and upsetting, I'm sure, for our industry participants that are now 5 years into flat market. We're definitely seeing things come down and you know, we've seen that continue into October.
So is this uh broadbased in all markets or do we have a very sort of bifurcated market or you know sort of a multipolar market uh that sort of reflects what's happening in the economy. You know, I think that the price points all felt um a step down, whereas the luxury and uh you know, second time move up, active adult, those markets I wouldn't have said were great by any means, but they were healthy. And I think that consumer confidence related to geopolitical, you know, events have continued to create more pressure on consumer confidence.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- housing market slowdown
- mortgage rates
- builder incentives and land banking
- rental demand
- fed rate outlook
Companies and tickers mentioned
- BRK-B
- BRK-A
- Berkshire Hathaway
- GBI
Watch the episode
Watch “Housing Weakness is spreading to luxury buyers | Ivy Zelman” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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