Insights into the real estate market: A deep dive with Ivy Zelman

Ivy Zelman, co-founder and Executive Vice President of Research and Securities, has nearly 30 years of experience guiding investors and corporate executives in the housing sector. Now at the helm of the nation’s leading housing research firm, Zelman & Associates, Ivy’s informed assessments of the housing market— including calling the top in 2005 and the bottom in January 2012 — have made her a sought-after housing expert. She frequently appears on television shows like CNBC, major publications such as The Wall Street Journal, and industry conferences, board meetings, and special events.

She recently spoke on the Walker Webcast about the current real estate landscape, its complexities, and what we can expect throughout 2024. Here’s a recap of Ivy’s insights.

Real estate market outlook for 2024

Ivy and her team rely on real-time data and insights from “boots on the ground” to understand the full real estate landscape. By contrast, the Fed’s method of calculating the owners' equivalent rent (OER) is historically lagging. It’s a backward-looking model that doesn’t represent the full picture. 

“I feel confident that inflation will catch up. The challenge will be patience,” Ivy predicts.

Ivy’s other predictions are:

• A “credit crunch” due to regional bank distress
• A slow journey into a recession
• Lower appraisals vs. origination
• An increased need for multifamily due to tighter lending availability
• Aging populations affecting the availability of housing

The role of appraisals in the current market

Ivy observes: “What we have right now is a slow bleed with banks facing reality, predominantly regional and small banks. It’s going to be slow and specific to markets that are hurting. The banks will be forced to tighten credit in other areas where they lend to deal with the problems they have in CRE.”

As a result of regional bank discomfort, Ivy predicts appraisal values will be lower than when they originated—a painful reality across all CRE categories, including multifamily. 

The impact of CPI and rent growth trends

A disappointing CPI print turned some real estate predictions on their heads—an equity market sell-off and a steep 10-year jump, for example. But Ivy remains hopeful the overarching thesis for the year remains intact.

“Our real-time surveys support decelerating rent growth. Across multifamily, a new move-in has gone negative for the fourth quarter. The public rates on average were down 3.4 percent. New move-in rent growth for the single-family rental is gone–slightly negative on the margins flat to down. This is not reflected in CPI, but I think eventually it will show up. The Fed is [probably] not looking at real-time data, unfortunately.”

Ivy believes that operators and owners are better indicators of what rents are doing vs. the Fed’s lagging calculations. A recession is coming, and it’s likely to be a slow, painful journey.

Banking sector challenges and real estate financing

From a consumer perspective, Ivy predicts a slow tightening similar to what we saw in the financial crisis of 2008. It’s a scenario that will play out over time as banks finally capitulate that the CRE loans they have are probably underwater.  

“Our world is focused on the mortgage market, and mortgage credit is pretty average in terms of availability. But if there is more pressure again beyond the agencies and banks in trouble, we're going to see a tightening in offerings. Some consumers won't be able to buy. Private builders are going to be challenged to borrow from banks to fund their operations. And we'll see more consolidation.”

Consumer market dynamics and housing affordability

Both multifamily occupancy rates and home-buying transactions are contingent on the resilience of the job market. Multifamily owners are prioritizing occupancy over lease rates, resulting in 95-96 percent occupancy levels. While this means rent growth might slow in 2024-2025, occupancy remains strong to bridge the gap, provided the job market and consumer strength continue.

Looking at the transaction market, Ivy sees more would-be buyers sitting on the sidelines. They’re waiting for valuations to come down, and “...this has a lot to do with the wall of capital and the refinancings that need to come to fruition. But there’s a significant amount of consumer interest.”

Ivy attributes some of the high valuations and housing shortages to America’s aging population. Homeowners who have a mortgage are disincentivized to move, leading to low inventory levels for single-family homes. 

“We see more of a long-term secular headwind in the aging population. Of 20-24-year-olds, about 50 percent of them move in a given year. The older you are, the less you move. In my age and cohort, less than 10 percent of people move. Assuming Boomers and Gen Xers aren’t moving as much, that’s hurting turnover and mobility. And I think that’s going to continue. We’re probably at some point going to deal with vacancies that occur given a rise in death rates, and then we’ll have inventory accumulating in the market. But right now, people are sitting and living longer.”

Investment strategies in the current market

BRF and SFR continue to be hot asset classes, particularly as people want new homes. A slowdown in construction due to land availability and growth moratoriums continue to push these demands higher, which creates unique opportunities in land banking.

“The biggest challenge is acquiring land. If you talk to builders today, not only is it harder to get land because of no growth moratoriums and difficulty from the NIMBYs out there, but you also cannot pencil in the returns that justify buying the land because land has not taken a break. It continued to inflate throughout COVID. Community count growth is slow relative to historic levels, and it’s become a game of replenishing what they’ve absorbed.”

Ivy also notes that it’s more affordable to rent vs. buy right now because of the surge in rates. “There's more interest in this space from institutions today, and real estate funds are looking to allocate more capital to support new opportunities and new communities and build for rent.”

Finding favor in real estate in 2024

Data-driven insights beyond the CPI hold significance for investors, developers, and consumers in real estate. Ivy and her team help stakeholders understand the full picture with historical and forward-looking context to navigate the 2024 real estate landscape with ease.

Contact Ivy for additional insights into the housing market today.