Zelman on the Housing Zeitgeist
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Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and this is a bit of a weird podcast. My two co-hosts are gone. I don't know where they are. I think Chris is off in the hills of Italy, and I think Marissa will join us in a few minutes. But we're getting going. We're a little earlier because we've got a guest on board, Ivy Zellman. Hi, Ivy. Hey, thanks for having me, Mark. Ivy, you've been on before, I believe, right?

It's been a while, but I have. It's been a few years. And you are an EVP of Zellman, Walker, and Dunlap Company. That's a mouthful. Yes. But tell us a little – I mean, in the housing world, everyone knows you. You're an icon. Yes.

And so it's not for that group of folks. They know you. But for the rest of the listeners, can you just give us a sense of you and, you know, a little bit about your path to where you are today?

Sure. Thank you for asking. I am an old dog, been following the housing industry for dating myself more than 30 years. I started my career at investment banking at Solomon Brothers or in investment banking at Solomon. I hated it. So the lights almost went out at Solomon because we had a treasury scandal and there were some openings in equity research and I needed a job.

And so I went to work in equity research, assisting in housing to the senior analyst. And eventually they handed me the sector work there until I went to Credit Suisse. And then in 07, I started Zellman & Associates. So actually approaching a 20 year annual anniversary. But I sold to Walker Dunlop in July of 21. So we are now part of Walker Dunlop, which is a commercial real estate broker and debt provider.

And, of course, folks out there in the industry know Willie Walker quite well. I've been on his podcast a few times. Yeah, he does. Talk about a blockbuster podcast, right? I mean, that's an amazing production. He does a great job. He does a fantastic job. And you've been on that a few – I guess you're on that regularly. Yeah.

We, myself and two colleagues come on usually quarterly. And then sometimes I go on my own, but yeah, it's, it's a great platform and he has incredible guests. So if you're not familiar with it, check them out on Wednesdays live at 1230, otherwise the recordings, but they're really great guests. And, and Willie's an excellent moderator. Well, that's a great advertisement. Like whose podcast you like coming on more mine or his just,

Just ask him. I'm scared to go on his sometimes. Why? Why? Because, because I, you know, I guess because it's my boss. Oh yeah. Yeah. But he's, yeah, he, but he's great. I mean, he does research for those podcasts.

He has to, especially because he'll have a lot of guests that just published a book and he'll have read the book. And sometimes like some of the guests will say he he asked me questions like, how does he know this? And they're shocked by how much content he has. And yet, you know, he's he's very prolific in his reading. And I'm very impressed. Couldn't do it myself. I don't know if we talked about this last time you were on. We may have. But the first time we met, I think, was Louis Rukeyser, wasn't it?

Do you remember that? Yeah, of course I remember. I have a picture of us with Lewis. Oh, do you really? That's got to be close to 25 years ago, right? Or more. Oh, absolutely. Yeah, we were young then. You were young. I mean, I was young then. You're still young. No, I'm not. But on a relative basis, believe me, I'm right there with you, honey. All good. That made such an impression on me. I remember there was something about...

He would come in in a helicopter. This was at a studio outside of Baltimore or something. We were there waiting for him. He came in on his helicopter. He goes into his office. And he did this monologue in the beginning, I believe. And if he got the monologue done in time, we would go live, right? It was always live. It was always live. It was always live? But I thought...

I thought for some reason that if he didn't get it done, or no, what it was, if he didn't get it done, we go live. If he got it done, we would, we would tape it or something. I can't remember, but it was on the show probably five times in my career. And you got invited back. I got it. Always live though. And it, my first time I was 27 and I,

We're doing a sound check and Marty's wag was there and there was a few other people. My ears were ringing. I was like, I can't hear. It was like the scariest moment. And thank God the camera went live. I was okay. But it was very memorable, frightening moment. I remember...

You were pumping him before we went live for the first question. You wanted to know what the question was because that way, obviously, you could give more. He would not give it to you. I remember he said, no, I'm not giving it to you. You're not getting it out of me. You remember that? Yeah.

uh no but i believe it yeah the other thing i remember is i think we had like a snack of vegetables or something afterwards you remember that room with paper plates and yeah it's terrible yeah that was so that was so fun that was pbs's budget yeah it was pbs right it was pbs yeah and we have i brought on another guest at one of my colleagues adam uh came in hey adam

Hey, Mark. Hi, Evan. Adam is... He is young. And do you remember Louis Rukeyser at all, Adam? I remember...

I'm not as young as you may think I am, but I remember sitting at the kitchen table. My dad watched religiously. I'm wondering if maybe one of these times you were on in the background getting a younger version of me secretly. There you go. Wrong me to Moody's. Well, thanks for joining. And as I said, Marissa may join in a few minutes. So Ivy, let's talk about housing. And maybe the way we can frame it is demand, supply, prices, and rents, and then go from there.

On the demand side, it feels pretty ugly to me. It feels like it's actually getting uglier. I don't know. Maybe you can riff on that a little bit. Do you agree with that characterization or am I just being overly dramatic here?

I think demand is definitely getting, has been weaker. The spring selling season was a pretty big bust and going into the summer doldrums, demand has definitely been negatively impacted by a lot of global events, you know, war in the Middle East, what's happening in the US with deportations and

And clearly tariffs are still out there and maybe not as noisy at the moment. But consumer confidence has really taken a step back. And local market news is really negative. So if you're in parts of the country that are suffering, let's just say a very weak housing market, it's getting worse because now the media is on top of it. And it's scaring consumers that they don't want to be the

first person, the person to buy at the top. So we're seeing markets that are actually down year over year and that negative sentiment is spreading. So that part of the demand is more confidence issue. And that's more pertaining to the move up buyer and the luxury buyer. I think you also have foreign buyers that are fleeing. Canadians have been noted. But on the demand side for first time buyers, it's been negatively impacted because affordability is the most stretched we've seen since the 80s, since the early 80s.

and therefore people just can't qualify. That part is more of a demand, you know, impediment that I think is not going away anytime soon. So we've got the twofold. If confidence was to stabilize, you know, stock markets back to all time highs. We haven't really seen the bounce in what we call the move up buyers, you know, willingness to jump in yet. But I clearly think things are not good and could arguably get worse because there's a

really on the supply side, the builders are driving prices lower where they're very significant and have a significant presence. Yeah. I mean, just a couple of numbers. I mean, and we got data this week on housing, existing home sales, they were like 4 million units annualized, maybe a little over something. A little bit better. And we also got pending, which were slightly up like 4.06 million. It's not anything to get excited about, but slight improvement in the May data.

Right. And of course, the existing sales are actual closings, the pending are contracts. So they kind of lead. And then new home sales, I guess that was a surprise. That was 600K-ish, maybe a little more than that, which was off.

And if you add those two, if you add existing plus new, you know, you're somewhere, say, four and three quarters million. That, I mean, I think you have to go back to the teeth of the global financial crisis to see that kind of number. I mean, that feels pretty bad.

Well, a lot of that had been due on the existing home side, which accounts for 85% of transactions, has really been to a function of the lack of choices, lack of inventory. Right. If you look at inventory nationwide, we're still really close to trough levels, bouncing up a little bit off the bottom. And nationally, we're up about 20%. But most markets are still below where they were in 2019 from an inventory perspective, so pre-COVID.

And so if you go into markets in the Northeast and think about the mid-Atlantic or the Midwest where public builders do not have a significant presence, there's still really a shortage. And when homes come on the market that are in desirable locations, they're still getting, in some cases, multiple bids. And that's happening really specifically in those markets where there's just not a lot of choice. And then you go into the Sunbelt and where the builders are highly concentrated, it's a totally different story.

Yeah. So what you're saying is this goes to the interest rate lock, I guess, right? Yes. Yes. Definitely part of that. No question. Just explain that. 73% of mortgage holders are locked in below 5%.

and more like 40% below three and a half. So obviously a significant impediment or willingness to give up that low rate is keeping the market very much stuck in many cities. And that had been the case. Then we started seeing inventories rising in markets that are

more resort, second home, investors, and then you have more primary buyers now or sellers that are contemplating, maybe I should sell and take my double or my triple and get out before it's too late. So that's really been driving those markets more so than initially. And now it's everybody. It's gotten very scary in those markets for many homeowners. They're worried. So just to make it more concrete, the 30-year fixed is somewhere just south of 7%. The

A little lower, I think, now. It's a little lower, I think, in recent trading. Six and three quarters or 6.8. Right. And the average coupon on an existing mortgage, so if you look at all the mortgages outstanding and take the average interest rate that prevails on it, it's closer to four by my calculation. So that three percentage point or not quite three percentage point gap is

That's an interest rate lock in the sense that if I'm a homeowner sitting with a 4% mortgage and I want to sell and then go get another home with a mortgage at 7%, the economics of that just don't work.

Unless they've had significant home price appreciation, they have tremendous equity and it's a lifestyle decision. They're ready to move out, empty nesters, downsizing. People are expanding their families, different reasons that they'll overwhelm the locked in effect if they have equity. A lot of times if they're

know equity hasn't gone up much you know go into westchester in the new york area we were looking at specifically scarsdale where my colleague lives and home prices for him his house is probably only up 20 since 2019 whereas you go into let's say naples or fort myers the home could be up more than a double or even close to a triple and so some people are just being greedy and they don't want to they're looking for that aspirational price their neighbor got i had a funny story maybe not funny to this person but this

gentleman who's my architect that helped me remodel my house in Cleveland called me in a panic and him and his wife are getting divorced and he has a house in Marco Island and he said, I can't sell it. Nobody even comes looking at it. I said, I bought it five years ago. What'd you pay? 400. What'd you list it for? 980. And then he says, well, I've lowered it since to 775. I said, well, Rick, if you want to sell it,

lower to 550. I mean, but that's the egregiousness of I don't want to give up all that appreciation because my neighbor's got a great price. And so I think I gave him news he didn't want to hear. But if he wants to sell it, if there are people looking for value, I have a woman at my dog park in Naples who was like smart enough to listen to me and sold and is now renting. And she's like a shark in the water waiting for value. But there's so there's demand. It's just a question of at what price.

Right. Right. I've been my thinking has been that, you know, over time, even if mortgage rates remain relatively high, say six and a half to seven, which feels like that's becoming like the new normal here.

you know, over time, the, uh, the demographic demand to move will become more significant and people will actually have to move. So like it's now been three years that people have been kind of locked in and their, their demographic situation is changing. You know, kids are leaving, they're getting older, uh, then job change, whatever it is. And you can kind of live in, in, uh,

navigate a home that isn't exactly suited to your needs for a while, but at some point it just doesn't work.

And you move. And I guess that's sort of happening, but it's happening very, very slowly. It feels like. I think that's why we're seeing listings rising and listings, as I mentioned earlier, up 20. But in many of the Sunbelt markets, they're up 50, 75, 100 percent. So people are either fatigued and waiting or there's a catalyst, like you said, a demographic rationale behind it's time to sell. And I think we'll see more of that as time goes on.

But I think sentiment is giving people reasons to sell too, especially if it's second home and they're in a market maybe where they moved from the Midwest or the Northeast and now they're really not happy with it or the homeowner's insurance is up substantially or they can't even get homeowner's insurance or they're seeing their property taxes double. I've heard a lot of people very cash poor and house rich, but they can't afford their property taxes. And that's been a reason they've had to sell. So there's some stress, but not stress enough to

call it trouble with foreclosure issues, but stress where they just can't handle the carry. And so they leave and they go back to where they came from. Now on the new home side, sales had held up better there. And I think my narrative had been that builders had actually effectively cut price. One popular way of doing that is the so-called interest rate buy-down, basically lower the rate for a period of time to make it more affordable.

And I think that the effective price cut from the interest rate buy down was something like 10%, 15%. So it was quite consequential there.

What's going on now? I mean, new home sales seem to be going south. Is it that the builders are giving up on those interest rate buy downs or is it that those buy downs and other incentives just aren't working at this point? Well, it's been pretty interesting just to go back a few years when 22, when the Fed first started tightening and rates moved higher, the market really was arrested. And you saw very quickly demand tank and

and builders prudently started offering mortgage rate buy downs and they were effective. And it brought, I think like Phoenix and Vegas might have saw pretty good pullback in price as they were in that sort of doldrum with rates rising, call it five plus percent decline sequentially in price.

creating a little value. Plus the builders started offering the buy down and they were doing three, two, one buy downs, but then they started buying for 30 years. So they're buying rates now pretty much 100% that are offering it for the full 30 years, very expensive. And what they're finding is that if rates, like we call up builders say, hey, you know, the 10 year rally, 50 basis points.

And rates have come down. Have you seen any benefit from that? And they said, no, because we've been buying rates down to 499. So it didn't really impact us. So I think there's fatigue in the market from consumers are very well aware of the buy downs. And to your point, when you look at a buy down, really the present value of that buy down is roughly called 15% and actually moving higher because the builders are moving lower to try to stimulate demand. Some builders tell me they're at 399.

on standing inventory. I've got 25 houses that aren't moving, so I'm buying those down to 399. And then I hear other builders are saying, I'm going to 399 on my new specs and even on a bill to order if I have to. So there's really more of the stimulus attempting to get

get absorption. But keep in mind, part of the reason they're doing this is they got pretty, I guess, optimistic that the Fed was going to cut in 23 or 24. So they were specking. They were very aggressively specking and spec levels are back to like 2009 levels.

So we have elevated specs in the market. They need to move. They're the most motivated sellers out there. They're not going to sit on the inventory. So they're driving value to the market. But now they're finding consumers on the first time entry level buyer can't even qualify at 499. So they're moving them down to 399. I've even heard they might go down to 349 if they have to. And that's kind of been like recent conversations. And those are very expensive. A 399 can cost 11 to 12 points for a builder.

So, they're doing everything they can. We are actually looking for year-over-year pricing to be down low single digits and effective price, which is inclusive of those incentives. And we think that negatively is impacting the existing market because now consumers have choices that's maybe a better value, but they sell to go buy a new home. But in order for them to sell, they're going to have to capitulate because the spread between existing and new prices is not sustainable where it is today.

Well, so if mortgage rates stay roughly where they are, somewhere just south of 7%, where are we headed here in terms of demand? I mean, assuming, I guess the other big assumption, let's assume the economy, the job market doesn't completely fall apart here, that there's no recession. Because if we're in a recession, that's a whole different ballgame. But no recession, kind of a softish economy, somewhat weaker job growth, maybe a tick up in unemployment, right?

Is that an environment where we start to see any pickup in home sales? I mean, if I have you back on next year, are we going to be talking a more optimistic way?

We think 26 will be a challenged year with respect to price. I think we'll start to see volume year over year, modest volume growth, but it's going to come at the expense of price because the lack of affordability and people not feeling like they're getting good value or home prices are near peak levels. In order to really stimulate demand, we think we're going to have to see prices sequentially move lower. Even nationally, we're looking for about a 1% decline in 26.

And we think that will come due to the fact that more volume is coming to market and we'll start to see price cuts.

Got it. That's another scenario. Again, we're not in a recession. The one thing that's concerning to us is right now, we're seeing headcount reductions by the builders, pretty significant for some. And we're also seeing the effect it's having on building product manufacturers and distributors. They're also starting to trim. So does that ripple to other parts of the housing ecosystem? And we get an accelerated level of job losses, not to mention all the jobs that we'll get

AI'd out and hearing companies talking about, you know, eliminating half their customer service people, their call centers are getting rid of, they get sales agents or AI agents rather than sales agents. And I just more concerned about what's going to come and seeing a little bit of glimpse of that with the leading economic indicators, home builders, and they're definitely cutting back and companies are cutting back on CapEx. So let's assume that that doesn't have, to your point, more of a little softer, but does that...

get worse, then we're in a very different environment than what we're currently forecasting. You sound pretty pessimistic. So you're not calling – do you call recessions? No, we're not economists. We don't call recessions. We follow like the forward yield curve, the blue chip.

economic indicators. I mean, we have our personal opinion, but you're the expert, not me, on forecasting economy. It doesn't make me right, even though I say I'm right. But Adam, let me bring you back in here before we move on to housing supply and talk a little bit more about pricing.

I know you watch, Adam's a fantastic regional economist. He runs our regional economic operations. I know you look at housing markets very carefully across the country. Any color you want to provide to what's going on on the demand side of some of these markets?

Yeah, I mean, I would, I mean, I think to me, it looks like the biggest differentiators on the supply side. I mean, I think demand, obviously, as Ivy said, has been structurally a lot stronger in the Sunbelt, the Mountain West, far weaker in the Midwest and the Northeast. But if you look at prices, right, it's been kind of

inversely, right? Where you see much stronger price growth and I may be cheating a little bit by going to the demand side of the conversation here, but just the supply side, but the lack of supply, I actually was just in New York yesterday delivering a New York Outlook talk and

Every county except one in New York is rising at a prices are appreciating at a rate that is meaningfully higher than it is nationally. This is across the board in some of these northeast states. So I think there's more significant regional differentiation and the demand side seems to matter less than the supply side, at least empowering differentiation.

New York being one of the standouts in terms of price appreciation. And I was just looking at Cleveland as well is a market that had very strong pricing. Again, same factors in the Northeast. In the Midwest, there's just not choices, not a lot of production builders. So you see that very significant divergence right now in price. Okay. So what you're saying is that if you look across markets, coast to coast, that there

kind of what's driving the differences between markets and you're here, you're mostly focused on price is, is not really demand. You know, demand is off everywhere. It's really supply. That's what you're saying. And you're saying a lot more supply in the South and the West where you're seeing price weakness than you are seeing in the Northeastern Midwest. That's what you're saying.

Correct. Exactly. And there are some markets, again, not to focus too much on New York, but there are markets on the supply side. And you guys know better than I do this. Generally, the idea is five to six months of supply on hand is associated with a healthy housing market. In some counties in New York, it's a couple of weeks of supply that are on hand. And so there's this kind of relentless upward trend.

pressures on prices there, even though the demand side is, I mean, there's nothing special about the demographics there or how those economies are doing. If anything, they're underperforming. So I don't think the demand drivers are there. And when you say supply side, it sounds like you're mostly focused on the interest rate lock effects, the supply of existing property or listings. Or are you also talking about physical supply, the amount of new homes coming

into the market, both? I think both, and maybe even a little more the second, that I just don't think there's that much building happening in some of these markets. And again, Ivy knows better than I do on this, but it seems like most of the construction is taking place and disproportionate resources are being devoted to these high growth markets. And some of these Northeastern and Midwestern markets are

There's just not the same level of opportunity there, so there's not the same amount of building, and so price growth is significantly stronger as a result of that. Right. So let's turn to the supply side of the market. And sort of my thinking around this is that...

the supply had been holding up pretty well i mean when i say supply i mean both new i mean i mean both the single family and multi-family could kind of sort of hanging in there but over the last six 12 months uh things have rolled over and we're starting to see uh let fewer completions uh housing starts are off uh supplies coming in is that right ivy do i have that right

Well, we think housing starts are going to weaken further. We're looking for a single family decline in 20. Right now, we're looking at about a 9% decline next year, which is pretty substantial. 9%. 9%. Single family. I think multis, we're thinking, start to move up from, you know, call it trend line.

And after having a big dip because they had so much in backlog, again, to Adam's point, it's very regional, though. It's like all the supply is in predominantly Sunbelt Mountain States West. And so that double impact, not only do you have single family production and you have multifamily production hitting the same market. So there's tremendous choice for the consumer. And therefore, those markets are feeling more pressure on whether it's rents and or for sale pricing.

Got it. Got it. You know, one of the things that has come to the fore on the supply side is tariffs and immigration policy. I mean...

One of the issues for the builders, correct me if I'm wrong, has been the difficulty of building at price points where people can afford them, lower kind of low to middle part of the market. High end of the market, that runs on its own dynamic, lots going on there. The buyer is much better financial position, may not even need a mortgage. The mortgage doesn't really matter as much.

And so, you know, there are no problem, but it's getting hard to build at a kind of low mid price point, even before the tariffs and immigration because of the zoning and permitting costs and everything associated with that. Then you throw into the mix now the higher tariffs and the immigration feels like it's really very difficult to build at lower kind of low mid price points. Is that fair? Yeah.

Yeah, and I think all your reasons are valid. By the way, I misspoke. Our 9% decline starts is this year, which is reflected what you're seeing. And that's part of which why next year we're looking for price under pressure, further price with volume picking back up. But with regard to your question, I think that our view is that builders today, their average price is in the fours. Entry-level builders are selling homes in the low fours. And that lack of affordability

or the reason they're in the low fours is because the land costs are the most significant component and land prices have only inflated. There's been no abatement in land really at all. We're expecting as the weakness continues that we'll see some maybe better negotiations or builders will walk away from option contracts or land sellers will capitulate. But for right now, land is really the reason. And on top of that, then all the costs associated with getting that lot

through the regulatory process and impact fees and costs that are associated with development. The builders are trying to reduce price by going further out, and they're also trying to get to a lower price point by smaller square footage. But even that, those markets on the third ring where they're building the most are the weakest.

And, you know, where we call it a drive to qualify. So one of the leading builders of the industry, Lenar, who has a strategy that it's not wine, it doesn't get better with age. They're going forward to drive absorption. They're going to do whatever they need to to lower price, whether it's base price reductions, which we are seeing, or couple that with mortgage rate buy downs in order to find where that market is.

basically where the demand needs it to be, where prices need to meet to get buyers back in the market. And that's going to take the rest of the industry around them because Lenar and Horton alone account for more than 30% of new home sales. So whatever, you know, if you're playing in the sandbox and you're next to Lenar, you're not going to be too happy. And if you're adjacent to them and you have to be built homes that you might've just signed contracts in the low fours,

but Lennar selling at 375 adjacent to you, you might see cancellations and then you have spec. So those are things that we're watching very carefully. But with the leader in the industry saying we're going to drive absorption at any price, that is part of the pressure that the industry is feeling, coupled with the fact they do have a lot of standing inventory that they're trying to move through. So they're only now starting to pull back on starts, which is where our start forecast is predicated on.

But I don't think that others might still pull back on starts. If they start to say, we need to get these finished lots. We had 12 brothers yesterday in our offices in New York. And they're a move-up builder. Certainly the move-up sounds a lot better, a lot healthier than what we're seeing at entry level. But community count is going to be up for them 10% next year. And the question for them is, do they start specs? Because once you have a community rolled out, you've already invested sewers, roads, pipes, everything.

So there's carry costs. So these communities are coming on. We think builders will spec to try to get the absorption better than to be built. So it's going to be an interesting phenomena, but they've already invested the money in the land. So 2026, we'll see continued pressure, we think. Hey, I see Marissa. Marissa, where you been? I'm so confused. I thought we were starting at our usual time.

I'm so sorry. I didn't get the updated invitation. You know, it's too bad because we've covered a lot of ground, including the meaning of life. It sounds like it. I know. You guys are deep in the home building. Yeah, yeah. You know, Ivy really gave us a few hints on how to manage through existence. Well, good thing this is recorded. Hi, Vanessa. Hi, Ivy. It's nice to meet you. Talk about confusion. So...

uh before we we started adam goes hey mark uh this one question i go what is it adam he goes what am i doing here exactly i'm so confused that's a good title for the podcast i am so confused i'm so confused i get a message from sarah where are you i'm like yeah yeah

It's good to have you on. Well, I think you have met Ivy from one of the previous podcasts. That's right. You were on it. We're talking about housing and obviously the demand side. Now we're on the supply side. And so let's get right back into the conversation. So Ivy, the tariffs, what do you think? How big a deal is that or not for the builders? Yeah.

Oh, for right now, I would say the tariffs have had really no impact on the builders other than Canadian lumber prices that then got exempt. There really hasn't been much of a success in pushing price to builders. They've been negotiating or basically saying, no, I'll find another vendor.

So in fact, you know, we looked at direct costs for Lenore. They were down like 3% on their sticks and bricks and their Toll Brothers was flat. So we really, our survey, which for those who are not familiar with our product, we survey about 20% of the new home market, private builders that we aggregate monthly and costs were up like 1.8%. So we haven't really seen it yet, but keep in mind the market's weak and there's

And there's plenty of availability when it comes to labor. So the deportation risk, you know, we've heard about a few ICE raids. There was one in Montgomery, Alabama on a D.R. Horton community that got a lot of press. Turns out that they really were after only two felons.

So then I was chatting with Lenore about it. They've seen similar incidences where there's been raids, but it hasn't been everyone. I guess the perception is that we have less supply coming to market now, less starts. And there's a lot of labor coming from multifamily because that market's been slow. So there's really not been a constraint on labor at all. And with the market, we expect to get weaker. I'm not sure that the suppliers are going to be able to push price and therefore they have to eat it on their margins.

Got it. Got it. So, so far, at least you're saying the tariffs, the immigration policy, the deportations, because the construction trades rely very heavily on immigrants, right? I mean, I think more than any other industry, I think almost a third of folks that work in construction trades are immigrants and half of those are undocumented, but you're saying...

So far, at least because the amount of building is going down, it's not become a binding constraint yet. It's not that big a deal. Right. And I don't know what percent are undocumented, but we hear that at least with e-verifications, the national builders, which account for almost 60% of new home sales, they're very confident that they don't have undocumented workers. So I don't know that stat and your source, but at least I hear from them, they're not concerned about having undocumented workers. Mm-hmm.

Okay, okay, got it. So on the supply side, oh, I wanted to explore one other thing before we, I want to play the game, you know, the statistics game. Mercer, are you ready for the game now?

You're not even ready for the game? Oh, my gosh. I can be. Okay. And Adam, are you ready for the game, my friend? I'm cramming right now. Yeah, we were all confused about the time that this started. Again, back to the confusion. Back to I'm so confused. But one more thing on the supply side. You said multifamily you expect because that has come in. You're expecting that to pick up again.

Why? I mean, vacancy rates are high, relative, you know, they're not high, but they've been moving up and they're more typical compared to historical norms. And we have seen rent growth go flat here now for the last couple, three years. And clearly, most of the supply is at the high end of the multifamily market, kind of these big, you know, luxury apartments in big cities. And

but why, why do you think you're going to see more multifamily construction going forward? Well, I think developers right now are concerned as backlog is getting depleted from what had been at very, you know, record levels, um, of backlog are declining. There has been the same divergence between the, uh,

concentrated supplier markets, the supplied markets, they again are still working through those completions. But when you go into the Pacific Northwest, you go into the Midwest, even the Northeast, rents are already re-accelerating. So while you still have negative new move-in growth

in the Sunbelt markets, you're seeing renewal rent growth starting to reaccelerate. So when developers are like, if we don't start, if we don't develop now, come '27, the backlog will be completed completely and we'll be sorry because those, you know, we need more supply. So their yield on cost is compelling enough. They're starting to get more optimistic and it's sort of the

sheep mentality. If everybody's starting to develop, I don't want to miss out. So we're feeling some of that coming from our multifamily operators' commentary about their fundamentals getting better and more demand on the development side is starting to come to fruition. Even on the high end, even on the luxury side? It's all high end. It's all high end. All high end. I'm so confused. Think of it this way. You can't underwrite anything but class A right now. Right.

There's no real, it's negligible what's happening for new development and affordable housing. It's all class A. So that's always been the case really in the last decade. Right. Actually, I have a paper coming in. I'll send it to you. Here's your comments with Jim Parrott and a few other researchers saying,

We're looking at the supply-demand balance at census track levels, and we've decomposed it into renter and owner-occupied. And what we're finding is that the shortage is really very pronounced for what we'll call workforce rental, kind of low-middle rental. Not the high end. The high end feels like it's oversupplied.

And on the owner-occupied side, it's kind of more to high, middle to high where the shortages are evident. But it's really the bulk of the shortage is workforce rental. Does that resonate with you?

I would say so. And on the for sale side, I still think it's really the entry level that's the most constraint that we see. And think of what was happening for so long is that investors were buying anything that had a two handle on it and they could pay all cash. They didn't have to worry about getting qualified for mortgage. And I think that the first time buyer was missing out because a lot of investors were gobbling up those homes, both on the existing side and the new side.

We were seeing more investors. They've stepped away now. And I think mom and pop investors are part of what's the pressure. Because think about it, if you only have 10 homes in your portfolio and all your costs have increased and you're worried about insurance, maybe I prune my portfolio, I get rid of five of my 10. So that's been incremental to adding more supply to the market too.

Good. Okay. All right. Well, we'll come back to rents and prices, but let's play the game, the stats game, statistics game. I don't know if I could be good at this game. We'll see. Oh, everyone says that and they're great. So I'm not at all worried about that. I always worry about Marissa though. She's like a shark. You got to be wary of her. She's always trying to go for the win, the jugular. Anyway- He's talking about himself, I think. Okay. Exactly. Okay.

Uh, the game is we each put forward a stat. Uh, the rest of the group tries to figure that out with clues, questions, seductive reasoning. The best stat is one that's not so easy that Marissa gets it. One that's not so hard that I never get it. And, uh, you know, if it's apropos to the topic at hand housing, of course, uh, that would be better, but it doesn't have to be, you can, it can be anything. Marissa, you're always up first. Are you prepared to go first here?

Yeah. Oh, cool. And I think I'm... Oh, am I? Yeah, I think I have a pretty good one, too. Okay, fire away. Okay, just give me one second. Let me just double check it since I took two seconds to find it. Um...

No, go to Adam next. Oh, go to Adam. Okay. How are you doing? Are you, are you prepared? I'm all right. I'm debating too. You always do that. You always do. I know I do. Well, give us the best. You gave me the other one. I've got one. All right. Let's go to Ivy. Yeah. Let's let the guests go first. To the rescue Ivy. All right. How about 1.2%? 1.2%. Um,

Housing related. Housing related. Single family? Yes. Is it a price? No. Is it home sales? Related to home sales? No. Housing construction? No. Oh. Is it an interest rate? No. Okay.

Goodness gracious. 1.2%. Is it a positive 1.2%? Can you give us a hint? It relates to predominantly the existing home market. Okay. I can give you another hint. It's very relative to 40 years of history. It's close to all-time lows. Oh, I know what it is. The homeowner vacancy rate. No. Oh, okay.

He was very, isn't that 1.2% though? I think it is. I don't know. That's not, are you ready? Do you guys all could be the share of existing homes for sale? It's yes. Existing homes as a percent of households for sale. Wow. So both actually all inventory of existing and new divided by households.

Oh, and is that, what's the norm? What's typical? 2%. 2%. Trend line would be roughly two and change. Got it. Got it. And how low had it been? Less than 1%. Less than 1%. Right around that. Yeah. So that's-

That's the inventory. So what is that again? That's the- So that's all single family inventory, both new and existing for sale divided by household. So it just shows you how stuck the market is. How stuck the market is. Because one of the things in my career, I've never seen the divergence between

the demand of units being at trough levels or close to recessionary levels, yet home prices are rising. That's never happened before. Yeah, that's a great point. That's a great point. And so I think it's all about the lack of inventory that has been driving price to your earlier point, Adam, whether it's in the Northeast and Midwest, those markets are really struggling for supply.

Yeah, that's a great point. I mean, you know, it's funny because like Toll Brothers, they're in the Northeast tri-state area. And, you know, I was talking about, you guys should go in the Midwest. You should build in Cleveland. There's no production. They're like, but there's no job growth there. So there's this,

This perception that if there's not tremendous job growth, there's not going to be enough demand for me to justify going into these markets. And that's part of the yin and yang of the supply constraint. Or there's just not enough land. Like in the Northeast, there's more difficulty getting into anything close to where people want to live. Right, right. I mean, obviously price is the confluence of demand and supply, but you're saying it's unprecedented that

You have price growth with demand literally on the floor. Right. Volumes, we've never seen that divergence before. And we never saw the divergence that new home sales were actually accelerating while existing home sales were flat down under pressure. That divergence was really reflective of the builders being more aggressive in providing value. I, in fact, have institutional investors who are like, you know what?

Maybe we're better off with rates higher because then builders can keep gaining share from the existing market. And I said, no, it's not better to have rates higher for prospective buyers at all. But some investors were thinking that way for a while. Along those lines. Oh, interesting. Okay. That was a really good one. Thank you. Yeah. Nice job, Adam. Yeah. Yeah. Thank you, Adam. You want to go, Marissa? Yes. All right. I got it. I was right the first time. Okay. 5%.

5%? Obviously housing related. No. No. Oh, okay. So you violated that? Not directly, anyway. Oh, not directly. I guess I'm off the hook then, Marissa. Yeah. But it's been mentioned in the conversation. An economic statistic that came out this week? Yeah. Today? I think it did come out today, actually. Okay. Okay.

So income, is it related to income? No. No? Not the saving rate because that's cheaper. I'll give you a hint. Yeah, go ahead. The decline from last month was the largest ever. Savings rate? No. No, that's a trade. No. Largest decline ever. Wow. In this series. Is it consumer sentiment? I think that came out today too. No? No.

It is part of a consumer sentiment survey. Oh, good time to buy? Is it from the University of Michigan survey? Yes. Oh, it is. It can't be inflation expectations, could it? It is. It's the one year ahead inflation expectation. It fell 5%? No, no, no, no. It is 5%. Oh, it is 5%. The decline from last month was the largest decline in the series history. Wow.

Between May and June. What was the last month? 6.6%.

So that 1.6 percentage point drop is the largest single month drop in the history of the series. Oh, wow. Well, of course, yeah, it's been going all over the place. Right. And all around. Yeah. I can't remember, is five high for the University of Michigan survey? Well, it's been up there, right? Like since the beginning of this year, it's been up there. But yes, if you go back to pre-pandemic, it's high. Still high. Yeah. Yeah. Yeah.

Okay. Oh, interesting. Oh, very good. That was a good one. Not as good as Ivy's, but you know. No. And yes, again, what with all the confusion, I couldn't pick a housing statistic fast enough. So I picked something. I got one. I got a good housing. Okay. 38.

Number of 38% or 38? 38 is the average age of the first-time homebuyer. See, ding, ding, ding, ding, ding, ding. Way to go. Yeah, absolutely. That's it. 38 is the average age of the first-time homebuyer. And that's up a lot. If you go back before all this mess a few years ago, it was 31, 32. Rock solid, 31, 32. Yeah.

38. And that just goes to affordability, right? I mean, folks can't afford, young folks can't afford a home and why there's such angst out there regarding that. But that, yep, you got it. You nailed it. Very good. Very good. Adam?

All right. How strongly do you feel about it being housing? I've got one that's a little obscure on the housing side or something that is- You're killing me, Adam. You're killing me. I'm going with my other one. I think this is kind of obvious, but I think there's a point here that is where- All right. All right. Go ahead. All right. 1,974,000. And this is not housing. It's not housing. I mean, it has some ramifications for the housing market. Is it demographic? It's not demographic. Job-related? Yeah.

It's not population. Okay. It is a number of people, but it's not a population figure. Right. You're not going back to travel statistics, are you? No, no, no. This is mainstream. Mainstream. This is not like the median home price in Shipwreck in here. Well, it's not. And you said it's not demographic. It's a number of people doing something. I mean, yes. Number of people receiving...

Oh, I know what it is. It's continuing claims. Yes. Continuing. Oh, yeah. Nice job. I was going to say 2 million student loan students are going to go delinquent. That's a good one. Yeah. Yeah. It feels about right. Yeah. So, but these are the number of continuing claims. So why did you pick that? I picked that because this is now the highest it's been in about three and a half years. And obviously it's not a direct housing market statistic, but we talk about the economy softening and we talk about the demand side. I mean, this is,

Maybe a little bit more reason to be, yeah, exactly, to be nervous, right? And it suggests, even though initial claims, I know that's what we and most economists focus on more, those have held steady. And this seems to suggest that workers that are losing their jobs are maybe staying on unemployment a bit longer, maybe having a tougher time finding positions. So this seems to be at least another indicator of softening. Yeah.

Yeah, you're feeding Ivy's pessimism. I can feel it. She's sucking this up. Exactly. I didn't give her a housing stop, but I figured I'd give her more reasons. Thank you, Adam. I'd like to be more optimistic, Mark. You tell me, Mark, you're the economist. What's going to happen with a lot of the headwinds we're seeing? Do you feel good about the economy? You think we have a soft landing here?

Can we have a soft landing and not feel good about the economy? I guess so. I think it's going to get, I'm with you, Ivy. I'm with you. You know, I think we'll be able to avoid a recession, but it's going to be uncomfortable, you know, here. And housing is a big piece of that story. I think, you know, housing is a key sector and is often a leading indicator of what's going on in the rest of the economy. And as we've been talking about,

you know i've gotten a little bit more pessimistic about housing and we haven't even talked about prices yet uh we should talk about that because it sounds like uh you're expecting some price declines here

- Right. - Yes. Yes, we actually are already seeing it on the new home side. - Right. - And we expect that that's going to continue into '26. So we think the existing market, the spread is too wide, and we think existing home prices, which are already for multiple MSAs, are already under pressure, some are negative. We think that's going to continue pushing pricing down year over year nationally by about 1%. And then that's really with volume picking up though, modest improvement in volume.

So nationwide house prices. And do you have a favorite house price measure? Because there's... We prefer TorLogic. TorLogic? We think it's the best one, but we're at 0.8, negative 0.8 for national, our forecast for 26. For 2026. You know, there is this house price index by this firm called Moody's Analytics. I'm just, you know, I'm just... And what is that? What's the forecast for Moody's Analytics? Yeah.

Basically flat, basically flat nationwide. And obviously when you're flat to down minus one, that means a big part of the country is experiencing price declines. So I assume that's in the South and the West primarily. Correct. Yeah. How big a deal in your price forecast is the increasing cost of insurance, homeowners insurance? Is that a part of the story in terms of the price declines?

Well, we actually include that when we're looking at the costs for maintaining the monthly payment and looking at the homeowners insurance, which is over trend line, it's more than doubled nationally. It was like 2% of your overall monthly payment if you're including property taxes as well as homeowners insurance. And now it's more than 4%. And that's obviously very regional where it's more significant. But that affordability, it's pushing or the affordability index is going the wrong way because homeowners insurance is also rising.

But it's not part of what is really dictating our price forecast. It's more about the inventory coming on and more capitulation and more people that are likely to become in a distress situation. We do think the student loan problem is going to affect the housing market. Oh, you do? We do. We're already seeing it. I talked to a broker who said they lost 17 contracts.

because there are buyers that were already pre-approved and didn't utilize it right away, had to be re-underwritten. And 17 contracts fell out because credit scores went from 800 to 500 in some cases, because in May of 25, student loans that are delinquent were,

started to get or being the credit agencies are being informed for those that are missing payments and they hadn't been been informed. So credit scores are getting negatively impacted and it is having an impact on front end big ticket, big ticket purchases, auto

houses, any kind of debt borrowing. I think it's going to have more of an impact than people may appreciate. That's interesting. I mean, we collect data on delinquency and we're at, what are we, Marissa, I think at 9% delinquency, record high. That's extraordinary. And expected to only go higher. And now we're looking at garnishing wages. Yeah, right. I think that's going to be a problem. But I'm curious because I have you, what happens to all the bodies that get AI'd out?

what about all the job losses that we're going to have yeah you mentioned that earlier uh you know i i suspect that plays out over a period of time i don't think it's a cliff event i mean i think it's like more of a corrosive on on jobs i mean historically and i say i should say this ivy there i opine about lots of things some i'm con things i'm confident in some not so much this would be the not so much

But if you look historically at technological change like the internet, it really takes time to diffuse through the economy and it only diffuses when new companies form and optimize around the technology. Legacy companies trying to adopt these new technologies, it's hard. And I can attest to that being part of a large multinational. We're all in on AI, but it's not easy.

So I suspect it's going to – it's definitely going to raise productivity growth. It's definitely going to affect jobs. It's certainly going to affect certain occupations and certain types of activities. But my sense is it's going to play out over a period of years, not months. So I don't think it's going to be – Yeah. Yeah.

Why? Do you have a different sense of that? Well, no, I just know talking to managements that are looking at headcount reductions related to that customer service, call centers. There's just many now, call it industrial companies, that are trying to catch up with what happens in Silicon Valley. And maybe they're working with the open AIs out there and recognizing they could shed headcount

and hearing more and more about it. So maybe it's going to be over time, but it's just now becoming chatter in the industry. In our old dinosaur industry, you know, where technology doesn't seem to accelerate as quickly as other industries. So that's why if this industry is starting to see job losses, what's going on in other industries, whether it's, you know...

Right. But the job loss is more related, again, back to demand and construction. Well, they're laying off because things are weaker than they'd like. They're trimming. However, they're also trying to find ways to reduce costs because their land prices are going up and they don't have pricing power. So they have to take costs out wherever they can. So they're utilizing technology to do so. And I think most companies are focused on their bottom line. They're not focused on where do those bodies go after. Right.

And I wonder collectively if everybody has the same strategy of reducing, you know, classes any way they can through technology and they we aggregate it all. It feels like it's not a good thing for housing. It's certainly not a good thing if jobs are under pressure or people don't have jobs.

Yeah. And maybe the, Adam mentioned the continuing claims in the lack of hiring, you know, that could be partly AI, you know, businesses are trying to figure it out and there's not laying anybody off. Layoffs are still low economy wide. And maybe they're thinking, oh, maybe we don't need to hire as aggressively. We can do this, you know, through AI. So that might be part of the story. Yeah.

What about rents, Ivy? So prices basically flat to down through 2026. Rents, they've been kind of flattish, you know, in aggregate, you know, here for several years. Do you expect that to continue or do you expect that to change here?

We have rents re-accelerating, not back to trend line until 27. But I do think that rents are re-accelerating because of the lack of supply in certain markets like the West, Pacific Northwest and Northeast. Whereas again, the divergence where rents are still under pressure is where the backlog is still elevated. And once the backlog gets depleted, then we'll see those markets likely re-accelerate because if for sale is stretched,

but people have to live somewhere. I think the rental market's a beneficiary of it. Even with rents up as much as they are, it's still on a relative basis, it's a better opportunity to rent versus buy. And I'll think, you know, other than multi-generational living, if we think kids are going to stay home with their parents longer, if they do move out, they're more likely to rent than to buy given the stress on, you know, for sale.

When I say rent, I'm mostly thinking about multifamily apartment rent, not single family rent. Do you think about both or? Yeah, well, we do follow SFR, single family rental. And we also have been seeing, you know, rents that are starting to stabilize, showing some improvement. But as the single family for sale market, more inventory comes on the market, then there's more choice. And some people that can't sell their houses, we'll put them up for rent. So that market might be more, um,

negatively impacted of what's going on correlated with the weakness in for sale. We don't see the SFR market re-accelerating as weakness continues in the for sale market. If anything, it could come under further pressure just because there's a lot of build to rent product that's not yet been rented. So there's more supply from new construction that is rental and single family.

And then just those, again, more listings in the market, maybe people offer them up for rent. So just more supply will impact SFR more so than multi. Got it. Got it. Hey, Adam, quickly, any regional color you want to provide here on prices or rents?

I mean, I think we talked a bit about prices. I'd say some of the same dynamics are probably playing out in the rental market. I think the areas that generally are seeing higher price growth, as you would expect, you're seeing higher rent growth. I think there are some downward rent pressures in the faster growing Sunbelt and Mountain West. And certainly, the market is, as with the housing market, very bifurcated. I think about the high end, there's

A lot of activity, maybe not quite as much demand. It's the middle of the market, especially in some of these big cities across the country where there's, again, just like in the condo market and the for sale market, there's this kind of missing middle, I think, and it's made it very, very difficult for

The young people who increasingly are moving into these highly rental dependent markets to keep up and to be able to afford the rents there. I think you're seeing some of the blowback to that, even in the mayoral primary in New York a couple of days ago, right? That's the latest example of, I think, that playing out and sort of some of the broader ramifications. Yeah.

Right, right. Well, Ivy, it was great to have you on. I'd say you were a bit of a downer, I'm just saying. But I also have to say...

And Marissa said it well. I was so confused. Now I'm less confused now as a result of the conversation. Well, I'm glad I can help in any way, Mark. Thank you very much. Anyway. And I do want to thank you because, you know, you were a champion. I know there's, you know, some trouble with your travel and you –

rearrange your travel to help me out. I'll just tell you if, if, if I had, if I was on Willie's podcast and the same thing happened to me, I would not have bailed him out like you bailed me out. So thank you very much. You're very kind to do that. I appreciate it. You're a good friend. Happy to help anyway. Thanks so much. And safe travels, safe travels. Thank you too. Have fun at the beach. Yeah. And to everyone out there, thank you for listening. And we'll call this a podcast. Talk to you next week. Take care now.