← The Walker Webcast
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- [00:11]
A
Join Willie Walker, Walker and Dunlop's chairman and CEO, as we bring you fresh perspectives about leadership, business, the economy and commercial real estate. Willie hosts a diverse network of leaders as they share wisdom that cuts across industry lines. His guests are experts in their fields, from leading economists and CEOs to Harvard and Yale professors and everything in between. Our one goal is simple, providing you with unique insights, unparalleled data, and real time market analyses.
- [00:44]
B
Welcome to another Walker webcast. It is my great pleasure to have my friend, my colleague, and my exceptional analyst friend, Ivy Zellman joined me today. First of all, Ivy, hi. Happy New Year. How you doing?
- [01:02]
C
Good. Thanks for having me back on. Happy New Year.
- [01:05]
B
It's always great to have you on. I was actually listening to a podcast you did recently, Ivy, where you were talking through Zelman, becoming part of Walker and Dunlop. And what you reminded me of during that podcast was that it was the Walker webcast during the pandemic when I first had you on to talk about the housing market in 2020. That then sparked our discussions about whether Zelman could and should become part of Walker and Dunlop. And as a, it was fun, first of all, to kind of take a trip down memory lane from five years ago. But second of all, to think that it really was sort of you coming on the, on the Walker webcast that allowed for the two of us to start talking about the two communities coming together.
- [01:45]
C
And that was the first year of the webcast. You launched it in March, right? Five years later, it's just, it's the go to for anything, real estate, anything really. People love it.
- [01:56]
B
Well, that's why I have you on this week and that's why, you know, you and I put it on for this morning after the President gave his speech in Davos. From the snippets I've gotten, Ivy, I haven't seen any sort of headlines other than a sort of an affirmation or an underscoring of trying to pull institutional investment out of the single family rental market. Was there any other headline out of that speech that you saw from this morning that we ought to start off on?
- [02:25]
C
You know, there really wasn't anything that we didn't already know. You know, he did talk about, you know, the. I guess not. They don't want to have a negative impact to home prices for those that own homes because there was speculation that they, with tweeting going on that they were going to push the builders, maybe restrict buybacks to have them have a lot more starts, come to market, flood the market, drive down Home prices not allow for mortgage rate buy downs to have true price discovery. And today's statements at the Davos press conference was basically we're not going to do that. He didn't say that. But we don't want homeowners that have homes to have values go down. So that was somewhat large more of a confirmation of I think something Howard Ludnick once said or conversations. But you know it talked about the SFR ban. They also talked about the mortgage backed security purchases, the 200 billion that they announced. But there wasn't anything that you know, we thought it was and we called a big donut frankly because we thought there was going to be this big program announced to really drive more new construction to the housing market and support, you know, for those that have been in the have not camp to be able to buy homes. And that obviously is not didn't get announced. I'm not sure that still won't happen, but it didn't get announced today.
- [03:44]
B
So with that as the backdrop in sort of affordability seemingly the key theme right now. If I think about affordability and what that means, that would mean mortgage rates coming down to try and spur more purchase activity. That would mean trying to drive down the cost of new home ownership yet at the same time not impacting the value of existing homeownership. It doesn't feel like multi really plays into the equation very much. And then on Fannie and Freddie, if the $200 billion of buying their own paper is to try and get mortgage rates down, which for a blip week before last, I guess we got below 6% on the 30 year fixed rate, it likely means that Fannie and Freddie, from a privatization standpoint they probably don't play around with that because anything that would potentially have spreads gap out on the mortgage backed securities would drive the cost of housing up. And that's contrary to their affordability mandate. Pick any one of those that I've put out there and take issue with it or agree with it.
- [04:59]
C
Well, I think the challenge is that, you know, we did have rates after the spreads were compressing with the announcement and strong buying demand by Fannie Freddie. The reality is is that mortgage rates got 5.99 for like a second and now they're back to 6.2 and that's a reflection of the 10 year backing up. So what can they do above and beyond spreads the mortgage spread is now back to about 188 which historically is really not far from average. Call it 1:6170. And we will get the data tomorrow on what's tomorrow from Freddie on what the spreads look like. But that is not going to be enough. And what likely comes to fruition with a new Fed chairman that the President spoke about in Davos is that maybe there'll be yield control, maybe they'll do QE and start issuing at the short end and not issuing at the long end because really the challenge is they can't control the long end and that will be the only way they can do it.
- [05:54]
B
So let's talk about that for a second because first of all, if you get a steepening of the yield curve which many are projecting, that then makes an ARM adjustable rate mortgage more attractive to the borrower. We sort of have been to that movie before with lots of consumers going to adjustable rate mortgages rather than fixed rate mortgages. Is that a concern?
- [06:17]
C
Well, the numbers are very low right now. They're in the high single digits. So I don't expect that know adjustable mortgages are really going to be the savior to affordability. I think that they've got to drive the long run down. People want 30 year fixed mortgages. That would really create a lot more confidence. But I don't expect the arms to be a significant portion of purchase money mortgages.
- [06:38]
B
So then go to the next thing you just said which was that the proposal would be that they issue on the short end rather than on the long end as it relates to US debt issuance. I'm shocked that back when interest rates were relatively speaking.01%, 2% treasuries that the treasury didn't push out maturities and borrow long. It sounds like right now they'd be sort of repeating well if you think the rates are going to go up from here, they'd be repeating an old ill. If you think the rates might actually come in on the long end of the curve, find an issue on the short end. Does them issuing on the short end concern you?
- [07:17]
C
Oh, it's above my pay grade, but recognize it's not. Well, I'm just thinking, thinking through the implications of that. I think you're going to have, you know, a lot more risk that this economy is going to run very hot and that's going to keep the long end stubbornly elevated because people are concerned about, you know, sort of what he's how he's controlling the Fed and that's obviously terrible for their we need to have an independent Fed. So above and beyond if we have a Fed he controls then he would likely issue at the short end. So he can take the pressure off the supply at the long end and whether that's a good or bad thing policy, you know, I guess we'll have to wait and see. I don't even know that they'll do that, but that's my speculation that that could come as one of their tools in their toolbox once he can control the Fed, assuming he can.
- [08:04]
B
So what part of the housing industry benefits from a steeper yield curve and the short end of the curve coming down? So if consumers are predominantly, as you just pointed out, focused on borrowing 30 year fixed rate mortgages, and so therefore any change on the short end of the curve doesn't really impact them very much, you've got builders on both single family and multifamily who typically borrow on construction loans on floating rate debt. So that cheaper cost of capital could impact them as it relates to supply of new multifamily as well as single family. You've got manufacturers of materials. Hard to kind of figure that out about whether someone who is a, you know, supplier of concrete or wood or whatever else is borrowing short or borrowing long as it relates to their overall capital structure. But as you think about that movement of a steepening yield curve, who's the, who's the beneficiary of that move?
- [09:04]
C
Well, within our housing ecosystem, I think as you pointed out, developers, the, those that are, you know, are trying to do ADC, AD&C financing because they are likely to finance with lower overall interest carry costs. But also thinking about the transaction market in general for multifamily because the multifamily transactions are also financed sort of at the shorter end of the curve. And you've seen a lot of five year paper that has been funding transactions. So that should be a beneficiary if we get the five year, you know, down as well.
- [09:35]
B
If you think about the move to pull institutional capital out of single family rental, and that was clearly underscored this morning by the President and I was here in Washington last week, excuse me, last night with someone from a high ranking member of the administration who said to me, look, pulling institutional capital out of SFR polls extremely well, there's a very small group of people who appreciate it and the rest all kind of don't like it and see the administration moving towards them. So hard pressed to think that at least between now and November there's any reversal of that, of that move. One of the things that I had understood, Ivy, was that some of the single family home builders were pre selling a percentage of their communities to single Family rental companies that could kind of give them 20 or 25% sold inventory on a 200 unit or 300 unit single family home development that was going to go to SFR and that that sort of down payment was very helpful and beneficial to the single family developers in going and building communities. Does the, if you will, the extraction of that institutional capital make it harder or do you expect single family developers to develop less because that institutional capital is being withdrawn?
- [10:48]
C
Well, I understand there's a carve out for new construction. So if the single family builders are going to develop lots and and build product specifically designated for rent, they can still do that as long as it's not on the MLS and the carve out is still questionable. A whole community for build for rent is allowed. That's been carved out, that's clear. But can a builder that has sort of mixed product offering single family for sale and build for rent in the same community? So mixed use? We don't know if that's going to be allowed. That's not unclear. As of right now, I would think it will be allowed. But you know, I would say on average the builders are probably selling about 5% in total of their product to single family rental operators. Some are more than that, but on average call it 5%. So certainly that would be a negative if they weren't able to do so. And it's a great distribution for them, as you pointed out, gives them the capital to develop for for sale or just in keeping their overall leverage on their operations, moving and keeping the machine going. But we don't know yet for sure.
- [11:50]
B
I would give you one data point which, you know, policy does have implications. And we had a very large institutional, both owner and lender who had a $70 million construction loan for a what I would call horizontal multifamily. So it was as BFR as BFR gets. It wasn't even individual lots to be able to convert it to SFR or sale once it was once it's rented and it was a $70 million term sheet and it was basically torn up last week because the large institution is concerned about this policy and being anywhere close to BFR or sfr. So while we have several lenders in a backup position to fund this deal that was pretty rapid from the president's tweeting out on it and a very, very large institution saying we're not even going to play around with this, we're just out. So it will be interesting to see in the carve out that you just pointed to once people actually Read that and understand it. Whether institutional capital sits there and says we can still play in the BFR space, but clearly not in the SFR space. And delineation, if you will, between those two asset classes.
- [12:58]
C
And, you know, well, on the contrary to that, pulling out what you just described, we had invitation homes that they moved forward on closing on a developer that they acquired for $80 million. So I think that suggests that development is the only venue for them now to operate growth or provide growth for their platform. If you're thinking about, you know, investing, they have to do it through new construction. And I think that that carve out maybe the investor that you're talking about, the lender that pulled out is because the uncertainty, but maybe it's more clear now and that will therefore not be as a risk. We'll see.
- [13:33]
B
Looking back on 2025, there was a, you know, in 23, 24, I would go meet with W and D customers, big, big owners of multifamily. And the theme was survive to 25. Everyone saw the oversupply that came into the market in 23 into 24. They sat there and said, okay, great, the supply, the oversupply is going to be absorbed in 25, and once it gets absorbed, we're going to get to national occupancy that allows us to start to raise rents. And per your data, there were a couple data points that I read in the most recent Zelman research that said that you either have slightly positive or slightly negative rent growth in 2025 across the United States. Clearly there were pockets that had positive rent growth. There are others that had dramatically negative rents in 2025. But basically you had flat rents. You had occupancy numbers that actually were significantly lower than many people had thought and projected. We thought we'd be at 95, 96% occupancy across the country. And that's actually in the low 90s based off of several Zelman and other data points. And it feels, as I've spoken to our clients of the survived the 25, and then things were going to kind of take off. It's now more of kind of hang on to 27, because 26 is going to kind of be this transformation market from a challenge market and getting us into a more positive market. Talk about where we sit today, Ivy, and what your outlook is.
- [15:10]
C
Well, there was definitely great momentum during 25 for absorptions as we had so much supply hitting the market, the lease up was benefiting from strong demand. And as we entered the fourth quarter, even though the Supply remained elevated. We started seeing the demand was under pressure. So it didn't didn't have the same ability to drive absorption in the face of the supply. And when you think about the supply numbers going into 26 and 27, some markets, predominantly the Sun Belt are going to even still have inventory beyond 27. So I think that you, if you don't have record level of absorption plus you have every other shelter in a Sunbelt is also oversupplied. You got single family for sale, you've got single family for rent, got a lot of vacant properties. We just published our single family rental survey today and it was the worst numbers in our survey history with respect to negative rent growth of negative 1.1. We've never seen a negative number. Blended was also renewals were down. So blended overall was one of the lowest numbers. So the supply for single family rental as well as for sale with all the discounting and incentives makes it even harder for multifamily to absorb all the products. So we think some of the Sunbelt markets will still be be suffering with elevated absorption through 27. And then you've got markets, you know, whether you're talking about in the western markets or in the Northeast where rents are, you know, definitely up quite a bit. You know, whether you're talking market like San Francisco, that's a standout or in New York. So we have quite a divergence. But the problem is a supply that we have is 75% of the markets are in that have too much supply really are weighting overall rent growth down for the nation. So we quartile it for some markets will be flattish, some will be actually up mid single digits or higher. And then you'll have those markets that are still going to be absorbing that supply in the face of all the other supply as well, compounding the problem. So I don't think it goes away in 26. It might be obviously coming down, but I don't think I think we have to have a re acceleration absorption to move faster through the supply. And that's where I think the forecast for us we had to adjust it downward from a 3% rent forecast for 26 down to 1.9, significantly still below trend line due to those markets that are still suffering with several years of absorptions or several years of supply that need to be absorbed.
- [17:34]
B
So is it fair to say that we don't have a housing supply issue, we have a housing affordability issue?
- [17:42]
C
Absolutely. I think we can talk about, you know, the fact that we have a shortage of Available, affordable priced homes. You know, I think about the young adults that are living at home with their parents at elevated levels relative to history, call it in the low 20% range when historically it was in the mid teens. How do we get those young adults out of their homes? So we could say if we just said every one of those people, that's the way you define the shortage or roommates that have yet to decouple. The problem is we need those the price point to come down. You know, if we told our 25 year olds, hey, you can go rent an apartment in New York for a thousand dollars a month, you'd see a lot of young adults leave home. But that doesn't exist. You know, same thing in la, same place a lot, a lot of cities around the country. So absolutely agree with you. It's a price point issue, not a volume issue.
- [18:27]
B
And yet the single family home builders are under a lot of pressure to increase their supply of single family housing. And from reading both Zelman research as well as Talking to several CEOs, it appears that at higher price points they're building inventory and it's selling nicely. It's the lower price points where they're having a problem with finding demand on the other end. And if you think about the price disparity between being a renter and being an owner, that is such a large gap right now that trying to, if you will, pull someone across from being a renter to being a an owner is just cost prohibitive. Yet they seem to be getting a lot of pressure to build more 300 and $350,000 homes, not 500 to $700,000 homes. How does, how does all that play out given the pressure that the single family home builders are getting to increase supply into a market that just doesn't seem to have the demand drivers there.
- [19:24]
C
Well, the interesting thing is that when you look at the builders absorptions, they're heavily incentivizing, they're at very healthy levels, their margins aren't very good, but they're getting, historically if we did one, one sale a week in a community or four a month, that would be a very healthy absorption in a community. And that's where we're running today. But it's all incentive driven. So when you think about their pipeline going forward, they have to keep specking homes. Those homes that are built without a buyer. And the way that they get the demand in the door is by giving mortgage rate buy downs. And we just were looking at the numbers and if you think about the number of Specs for the industry were sold. Of the total new home sales, it's over 90% respect. And part of that is that affordable price point. The only way they're getting buyers in the door that can qualify is by giving a mortgage rate buy downs below 5%. Even on completed inventory they offer 399. In some cases they can't qualify at 499. So when you look at the household income for a for sale buyer versus a renter and the differential in price it many people may never get to be a homeowner and by having more product selection like a build for rent product and for those out of necessity should be available to people that want that still single family experience and recognizing that that renter might also just want to be a renter. You know that perspective buyer may never want to be a buyer or something in that range. But I do think that the builders will keep building specific because that's the only way they'll get absorption for that that entry level price point. So they're in a bit of a circular challenge because you know they have to build it without a buyer. And the only way they'll get the buyer in is by doing a mortgage rate buy down. So that will keep pressuring margins. Now with rates coming down they'll have. It will be less expensive because it's very expensive to buy down rates. 200, 300 basis points. So maybe you'll see a little margin relief as we start to anniversary the much higher incentives with higher rates.
- [21:29]
B
Why is it that they can't do mortgage buydowns on. On. On custom? Just why does it have to be a spec product to be able to do the mortgage rate buy down rather than on the custom home front for.
- [21:41]
C
A product that's built to order? Is it the duration of holding that is so expensive for them to buy a forward commitment? Because the duration of a SPAC could be 30, 60 days. So they are taking risk. And there were times in the past where they had to do write offs on the price of their forward commitments because rates came back down for a second and they had paid up for that. So I think that they're just too concerned about the length of the bill to order while it sits in backlog to hold that paper. Too expensive.
- [22:09]
B
Got it. And as the administration has been, if you will, researching what they could potentially do to try and spur development of single family homes. One of the big focuses has been on the land entitlement process and red tape that makes it hard to entitle land and all of the costs that go into meeting with local regulations, given the land inventory that the single family home builders hold today and how much of that is entitled, is that really big issue as it relates to the overall cost today or is that more of a kind of a forward look issue as it relates to your basis on the land?
- [22:48]
C
No, I think it's a problem today. I mean, when a builder breaks ground, they have to, assuming they're building a new development, they're going to absorb all the costs associated with that local community's need for more police, fire departments, schools. Those costs are all pushed to the builders and those are called impact fees. So for example, in San Francisco it might represent 15% of the average selling price. In Houston it might be on average 5% of the average selling price. So they're literally losing money before they break ground, assuming those not making anything. And those impact fees are pretty exorbitant. So I do think it's a real problem for them. And that's just one aspect of costs. There's also the costs of, you know, regulatory costs. They have to deal with environmental issues. So there is a lot of costs that if they were somehow more likely to be shared with others in the municipality, it, it could relieve the builders and allow for them to maybe offer better, more affordable homes. There's also, like in hoas, there's minimums of lot sizes and square footage. So we have builders that in some markets can build as low as 1200 square feet. But then in other communities where there's much more restrictions, like in HOAS, that won't allow any home smaller than 1600 square feet. So the builders feel like they're, you know, one step forward, two step back. Wherever they do take out costs, there's still problems within markets of getting, I think, more support from the jurisdictions there.
- [24:13]
B
You talked about those fees and you used data points between San Francisco and Houston and you used, and obviously these are rough numbers, but on San Francisco you said 15% and Houston you said 5%. Is this a little bit of a circular reference? Is it not a circular reference? Is it a, a compounding problem for states and cities that are running deficits and as a result of that need these impact fees to cover the increased cost of fire and other things, and therefore those continue to stay high. And in certain other cities and states where they've got balanced budgets, where they've got net migration in that is taking a broader tax base, they are just kind of at a structural advantage going forward as it relates to development and being able to have developers put new communities into their MSAs?
- [25:07]
C
I mean, one, maybe one part of it. There are other aspects to it. But I'm just thinking, for example, I mentioned Houston. Houston's impact fees pre Covid are probably up 50%. Like what we've seen is even where you have low impact fees as it fees as a percent of aspect, they've gone up significantly. And that's been all through Covid. You know, where we saw the only other thing that didn't deflate and continued to inflate were lot prices. So lot costs never got a, never, never took a breath. So in the face of all of the pressure that the builders were feeling with supply chain problems, they were also dealing with lot prices that were still inflating. So I would say the land costs are the, probably the biggest impediment when you think about the cost of goods sold for a single family builder. And we're looking at a pie chart. A third would be lot price, a third would be building materials, and a third would be labor. Right now, labor is plentiful despite the risk of deportation and impact that it would have today, we're not seeing any impact. Yeah, there's been raids and it upsets the community for a few days as people are afraid to come back out. But there hasn't been any labor inflation. There's been actually some builders, like Dr. Horton Lennar, they actually have had material costs actually were down year over year in 25, whereas the industry's probably up 1 to 2%, which is remarkable. So those two issues have not been really a factor. The lot prices, though, have remained elevated, call it up until the fourth quarter. We do a development survey. We had seen lot prices up mid high, single, low double digits. And we saw quite a bit of a pullback in lot inflation for the first time with lots only up 1%. But that, you know, is definitely not down. So they're still inflating. So I think lot prices are probably the biggest impediment to really providing affordable housing. And that's not something necessarily that any local municipality can force or change or government involvement or intervention. I don't know how that would change.
- [27:08]
B
You just mentioned labor and that there was some concern that we would have sort of labor shortages and the cost of labor would go up precipitously. You said that that has not materialized. What about the impact of immigration policy and the closing of the border and then the deportations that are happening? Has that had an impact on the demand side of the equation?
- [27:27]
C
You know, it hasn't been prevalent in new construction for sale. I think we've seen some commentary from our multifamily operators and some class B dwellings where there has been, you know, an impact, but nothing material. You know, you hear more anecdotes than anything today. And certainly if we saw an acceleration in demand, let's say the administration gets what they want, rates come down quite a bit. You know, we may have a real labor problem because they're not going to be able to keep up. I do think that there's markets where any improvement in demand, we may start to see some real stress around labor. But today, especially when you have all of the, you know, components of shelter all under pressure, you know, multifamily is depressed. We've got single family that's doing better, but relative to, you know, keeping these guys busy, it's pretty slow out there.
- [28:17]
B
And when you think about an improving condition, you went to rates.
- [28:22]
C
What about.
- [28:23]
B
I mean, there are plenty of people. The president this morning in his speech in Davos talked about that we might see GDP growth at levels that we've never expected before. I was listening to a number of market commentators last week talk about, you know, 4 to 6% GDP growth in 2026. Doesn't 4 to 6% GDP growth translate into full employment and increasing wages? And therefore a consumer has more buying power? And if you get the compounding effect of lower rates, that all of a sudden, bang. That all works together to have a really, really robust housing market, or doesn't that translate into jobs because of AI?
- [28:58]
C
Well, does it translate in because of AI, Maybe the impediment to really getting incomes to rise? Because even though we'll have strong GDP growth, the question is, you know, is that really benefiting, you know, entry level jobs or white collar jobs? That's the big question mark. You know, certainly what we would say the three components to help affordability would be incomes grow faster than, than the mortgage or the, the wages. Wages grow faster than inflation. Wages are increasing, the monthly mortgage payments are coming down because rates are coming down. That would be. And also the price of homes, which we don't expect are going to come down much. We're kind of flat for 26 with a slight acceleration 27. So you're right, but that's a question mark. What will wage growth do in the face of strong GDP growth? We may not get that wage inflation, but that would certainly help. And I think that consumers today are also still, we're dealing with the stuck factor, and I think that's diminishing significantly. The stuck factor being defined as those homeowners that are locked in below 5. In 2022 it was 90% and fast forward to 25, it's 72% and by the end of 27 it will be 50 something 50 high 50. So thinking about many are starting to say, you know, if I'm locked in at 3 and rates are 6, you know, I might not be willing to sell today but if my family's getting bigger and I don't have enough room, they're going to sell. Ryan McKeveney who runs our mortgage and real estate services, I'll give an anecdote there. He had another child and him and his wife sold their townhouse and bought a single family home and gave up his low rate because life moves on. But I think that is still a factor in keeping people from looking or wanting a new home.
- [30:40]
B
They're, they're locked up and, and on that you all cover the single family mortgage originators, you cover Rocket and others. What's your sense of that market given that that is that market has been relatively depressed given the lock in effect that has been there. So the refi activity has been muted and it's really been mostly on new home sales. The outlook for them given improving rates is positive. Flat.
- [31:09]
C
I think it's positive. I think the refi market has definitely improved and I think the purchase mortgage market as rates are coming down. In the existing home market pendings were disappointing today, down over 9% sequentially. But the overall demand exiting the fourth quarter in the existing home market we did see improvement and I think with rates coming down we expect that improvement to continue and are looking for existing home sales to increase 5, 6% in 25 or 26 and 27. Not much growth but definitely modest growth. And I think it's about confidence too. You know, people might not feel great about what's happening from you know, the government going after Greenland or dealing with, you know, the NATO and problems with Europe. Those have an impact on consumers behavior and is probably keeping many people on the sidelines with all the uncertainty of are we going to go to war? War, what's happening in this country?
- [32:00]
B
And yet at the beginning of the year, the surveys that I looked at this morning, Ivy and one of the things that Zellman has done so fantastically is have these incredible surveys that sort of give what I would call sort of preliminary data seeing foot traffic for instance. And one of the things I saw was that the sequential foot traffic on the single family side was up last week. Yet On a year, on year basis, it's still down from where it was a year ago. What's your senses, I mean to that you're following foot traffic of people going out and looking at single family homes and trying to get sort of ahead of the curve as it relates to do we have an uptick here or do we have a downtick, if you will. What's your sense given the macro backdrop? Because the stock market, I think the president said this morning the stock market hit an all time high 54 times in 2025. You have relatively stable and on a long arc, stable and relatively low interest rates. They're not near where they have been for the last decade. But if you look at in a longer arc for 4, 25, 10 years and that expensive, you have job growth, you have a relatively stable unemployment number at 4, 3, 4, 4. Why isn't, why isn't all that good news, if you will, in the market and wage growth, things like that, spurring more demand. From the consumer standpoint, is it that you think that there's kind of a reasonably, you know, the macro outlook is somewhat tenuous as it relates to where US foreign policy is going and therefore people are deciding not to make that bold move or is it just that they don't have the money?
- [33:33]
C
Well, when you think about, you know, the health of the, you know, overall consumer, we have to think about, you know, quartiling them because we have a K economy. We have the have nots and the have nots have got a long list of issues that could be impediments to homeownership. We've got student loans that are delinquent at record levels. We've got credit card debt and auto debt or sorry, delinquencies for both credit cards and auto that are either at all time highs or close to all time highs. And I think that balance sheet for the consumer is stressed. So the low end consumer that wants to buy an entry level home because of all of these issues on their balance sheet, they're not the ones that are participating in crypto asset inflation. We're not seeing their participation in the stock market. So they're really kind of the group that's left behind and we have a lot of data to support that. So I think that, you know, you mentioned earlier that the move up market, you know, seems to be pretty healthy. You know, those are the people that are benefiting from everything that you described that are involved in crypto or own crypto and own assets, whether it be real estate and, or the Stock market, they're involved. So I think that's really the distinguishing factor is the have versus have nots are, you know, the divide is just getting worse.
- [34:45]
B
I totally get you on student debt. But you said credit card defaults at all time. Highs I haven't seen.
- [34:53]
C
Not defaults. Delinquencies.
- [34:55]
B
Delinquencies. Okay.
- [34:57]
C
Delinquencies was you know, obviously precursor. Both credit card and auto. I think auto is at all time record.
- [35:04]
B
I've heard auto. I didn't know that actual credit cards. I've been followed the credit closer low.
- [35:09]
C
But I do like the president capping, you know, the exorbitant interest rates that credit card companies charge consumers. It really, I see it personally within family members and friends and how they just can't get off that vicious cycle, can't improve their, their balances because there's just so much interest. So I think that would be a big positive if that was passed as part of his, you know, proposed legislation to cap that interest. That would help.
- [35:32]
B
You don't think that's an interesting comment. You don't think that the, I mean, if there was a market for only charging 13% interest rather than 22% interest, you don't think that the market would be providing that and pulling balances away from those that are charging 22%? You don't think the market would, would solve that? You think it needs regulation to be solved?
- [35:51]
C
You know, I'd like to say the free market would allow for that, but we haven't seen it. You know, there hasn't been an incumbent that's coming in and offering something so substantial to drive volume away from the bigger guys. So I don't know. I think everybody's kind of in cahoots, you know, looking at, you know, credit card rates. It's crazy. So I, maybe it needs regulation. Even though I'm a free capital, you know, free market capitalist. I do think there's a lot of pressure for people, personal friends, family, seeing it. It's real.
- [36:19]
B
It's a problem I, I touched on briefly at the top. But I want to loop back to Fannie and Freddie and affordability, first of all, as it relates to whether Fannie and Freddie get spun out of conservatorship. Your view that for 26 or 27? Yes. No, maybe. Where are you on that one?
- [36:39]
C
You know, if I was looking at, without, you know, any insight, I would say it's hard to imagine it's, they're going to come out of conservatorship without pushing rates higher. If they want to depend on private capital, institutional investors, pension equity, whatever, they're going to want higher returns. So rates are going to have to go higher. And I don't know how they could do that outside of conservatorship. So I'm dubious that they won't break something in the process of trying to come out of conservatorship. And they said that Ludnick and Bill Pulte, they'd be very careful to make sure nothing breaks. But I think it's a high risk and yet to see any proposal that would mitigate that concern.
- [37:16]
B
And so if they don't come out, they continue to supply liquidity both to the single family market and the multifamily market. Any, any, any concerns about either changes to the conforming loan limit to the amount of buys that they're doing to any, you know, them buying back $200 billion of their own paper that you see right now, or if they stay in conservatorship in their current format, it's, you know, it's a stable force of massive financing to the single family and multifamily markets. And no harm, no foul, no, you know, no change. No, no foul.
- [37:49]
C
I guess I would go with the latter. I get it works. You know, it's kind of like you don't scream fire in a movie theater. If everything's working, you know, the. It's working and the system is providing liquidity, to your point, to multifamily and single family. Otherwise maybe that liquidity wouldn't be there. So I'm a proponent that the government does have, you know, a pretty big hand in housing, as in it's necess, it's a necessity.
- [38:12]
B
So when we were previously talking about markets, you said, you know, the market is really kind of, you have to bifurcate it. You have to look at the high growth Sunbelt markets, you have to look at some of the slower growth, what I would call northern markets, Midwest markets, as you are sort of picking favorites of someone who's trying to either invest in single family or multifamily. As you and your team look at the, at the country right now, what's sort of the risk on and what's the risk off bets. And you can break that out either in a single family, multifamily, or just all in on. I'm going to talk geographically here or price point here, rather than looking at it specific market by market.
- [38:51]
C
You know, I think there are markets where there's been like, crickets of development, multifamily for example, in California and the start numbers are pretty non existent for both multifamily, less single family pressure, but more multifamily. So you would think there'd be opportunities in California and maybe it's the Pacific Northwest where start numbers are just abysmal. So at some point, and you know, I wonder when developers will take that risk because you would recognize you have to provide more dwellings. And obviously some of that's also concerns about Newsom having any rent control legislation passed. You know, I'm still a proponent for the Midwest. You know, we now are finally seeing the builders coming into the Midwest recognizing they can provide and offer affordable housing in the Midwest relative to other parts of the nation. And you know, the Southeast is still, you know, parts of it are affordable, whether we're talking Alabama or Tennessee, I'm in the Carolinas where you can find a home for under 300. So it's really about affordability. And I think the move up market throughout the country is not that much different. If you're in New York versus let's say the Texas markets, Florida markets, there's more incentives. But I don't think you're seeing massive price appreciation in the Northeast or in the Midwest for the move up market. It's healthy. So if I was looking and I'm speculating, I'd say provide more affordable housing for single family developers. Take risk on in the Midwest, find opportunities in the Southeast again, whether that corridor and the panhandle down there where you can still build really affordable homes. That's where builders should focus and the multifamily operators, you know, suburban, whether it's, you know, product they can convert, value add. I just think that there's more need for housing in those markets than is currently available. So there's opportunities there.
- [40:41]
B
When you mention California and the Pacific Northwest, my mind immediately goes to, if you will, government risk. And a lot of our clients who I talk to about either owning assets or building assets in California, Oregon and Washington saying, you know, seems like the demand drivers are good, but at the same time we take a lot of political risk by going into cities that are governed by progressive, either mayors or city councils. As you think about that, are there people who are able to see through that and who can sit there and say, nope, I'm going to take the risk because there's a great opportunity here. Or do you see more developers, whether on the single family side or on the multifamily side, sort of picking spots that have a sort of an overweighting today as it relates to government policy in those cities and in those states.
- [41:38]
C
Tough to answer. You know, I'm not in the C suite discussing, you know, where they're allocating capital and investing, but, you know, there's definitely developers, multifamily developers. I'm thinking of one. I won't name them that are willing to take that risk and are staying in those call it, you know, states that are more political risks associated with them. So it's hard to say collectively, but I understand why those would be hesitant to go into states where there's, you know, much more, you know, not friendly business, really, that doesn't want development. So I could see why they'd be hesitant. You know, I think that there's a lot of things that need to change in this country as it relates to housing. I was just reading about in manufactured housing, you know, Bill Pulte talked about loving manufactured housing. And one of the big challenges for manufactured housing is nimbyism is the quality of the product. You know, what people, the aesthetics of it. But there have been states like Indiana and Kentucky that passed legislation last few years that have put manufactured housing on par with single family for zoning purposes. We haven't really seen any improvement in Indiana, for example, since it was enacted in 21. Part of the state governments need to work with their local municipalities to try to provide easier zoning, easier entitlement, more friendly towards developers. And that's very, very select markets where we see that. And I think that's the biggest challenge is how do you get local governments to work with developers and appreciating that they're the ones that are causing the impediments to getting more housing in their. In their communities.
- [43:08]
B
You just mentioned Indiana. I would be remiss if I didn't point out that Indiana won the national championship, which you, as a big Ohio State fan is first salt in the wound. And then you and I both have family members who are at the University of Miami and your. Your twins were there at the championship game. So congratulations to Indiana on quite the. Quite the season. But Ivy and I would say Ivy and I were texting each other about the loss on Monday night. That brings up New York. Ivy, anything? Any. I mean, you, obviously you. You and I have a large team in New York. They're not only there to cover the markets, but they also are seeing what's going on in New York with Mandani coming in. What's the outlook for housing in New York?
- [43:53]
C
It's tough to say. I mean, Mandani's early on and as mayor, from a policy perspective, you know, I don't know what he's going to do, but there's obviously a lot of concern about rent control, but it's not a big market for single family developers. You know, if anything, it's really more multifamily that would be impacted, I think. But right now I, I'm guessing it's not going to be favorable if he does implement any of the policies that he spoke about during his campaign. And I think one of the things the Trump administration really was, at least in talks with home builders. Home builders were going to Washington sitting down with the administration. They're sitting down with the people that make decisions. Besant Ludnick, Bill Pulte. It felt like they're, they were really focused without saying so, on collaborating, on helping builders with, you know, more positive implications for development going forward. So I don't think that those conversations are done just because in Davos he didn't mention anything. The coming. So I still think there's hopefully positive legislation because of the risk that we'll have more Mandami. They don't want that. They need to do something even though they didn't say that. They don't want more socialists running cities in this country. They have to have programs that can help the have nots if they want to win the midterms. They have to come up with something more significant than what they've already done. And maybe they think they add up mbs, you know, spreads compression, that they're going to see the benefit from banning investors from institutional investors from buying. I don't, I don't think that moves the needle. I think frankly, it's a bad idea. I think institutional investors serve a great purpose. Think about all the homes that would never get refurbished because no one can afford to refurbish them and clean up the stock that's, you know, 50 years old. So anyway, I'm on my soapbox, but I do think that this administration has to take bigger steps to help provide more affordable housing, more housing for the have nots. And that's something I'm still hopeful they'll do.
- [45:46]
B
Yeah, I would say I was with one of our mutual friends who's a CEO in the industry last week and his comment to me having met with senior administration officials is it's very clear from Mundani's victory in New York that, you know, if you will, they sold socialism and that's a sort of a, not an easy sell, but that the, that people bought it and Mandani is in that position and that it's time for capitalism to step up and show that it actually can compete with that and that there is solutions here that are market based and that will make it so that people can afford to live in these cities. And I thought it was an interesting take on sort of it's time for us to show what we can do. Because it's very clear that socialism has attracted a lot of attention.
- [46:27]
C
No, absolutely. And that's why I'm optimistic that something had still come to fruition from this administration that we'll have to wait and see. But I think that their intentions maybe are more political than fundamental. But that works too well.
- [46:43]
B
I would say, I would say that I had a. I had a long conversation last week with administration officials and one of the things that they said in the conversation was, you know, you're talking solely about economic policy. We also have the filter of political policy. And so while we're sitting there in the data that says what you ought to do on this specific issue. And I won't give away what we were talking about, but it was like, I was like, well, that doesn't make sense for an economic standpoint. They're like, we get it. But there's also a political filter that we have to be taking into mind, which I do think is an interesting one. You did publish out Ivy that you think that, you know, this either flat to negative rents and where housing prices are is going to filter through the inflation numbers and that we're going to get some relief as it relates to the cost of housing on the inflation numbers, which should give the Fed the capability there as it relates to, if they are data driven and not politically driven to be able to cut based off of the data. Not necessarily just because of the political influence.
- [47:39]
C
Correct. And we survey not only single family rental and multifamily rental, but in aggregate, those surveys are really a precursor of what CPI will do anywhere from four to six months later. So given the weakness we're seeing in SFR and in multifamily, we do think that that would be a positive from a Fed policy perspective and would expect by April we should see overall inflation. If we take the 40%, 45%, that's shelter and we extrapolate what that means for overall inflation, we would see by April. The work that Mark Franceski has done who has our real rental program, is that inflation would be about 2% by April if it comes to fruition. Because the real data out there, it's tough. Their rents are under Pressure, and that's not what was reflected in the shelter component. Most recent publication last week for cpi, but we expect it's just delayed.
- [48:32]
B
Yeah, we're clearly not seeing it in our portfolio. I look at those CPI numbers and I sort of say we got clients who would be dying to charge those kinds of rate increases. So it's sort of a tale of two worlds. There have been a number, you know, M and A was a big part of the 2025 story as it relates to bank earnings and M and A activity. And I think many people are thinking that 2026 is going to be similarly robust from an M and A standpoint. You, you had the, you mentioned previously the Invitation Homes acquisition, which is a relatively small acquisition, but they, they kept forward with it. The, the Compass acquisition was quite noteworthy in that it was A, a massive consolidation and B, didn't get the regulatory scrutiny that many thought it was going to get. A, the impact of that combination on the single family brokerage space and then B, D, do you see more M and a activity in 2026? And is that going to be on the home building side, the multifamily side or the broker dealer side?
- [49:35]
C
So first on Compass and anywhere, you know, it's early, but there are a lot of opportunities for them to drive a company that was extremely, let's say operating at very depressed levels. So I think the combination, how it affects the broader market, we'll have to see. But I do think that they're already national and now they're just so much bigger. So can they leverage those agents that might not have had the collaborative C suite that working with them? And there's a lot of things that I think they're excited about that they didn't have when they were at anywhere being run by a different management team.
- [50:09]
B
And before, before you go to the next one, just one quick thing on that. Did the, did the lawsuit against the national association of Realtors that allowed for basically the, the, the three and three pricing model to be taken down? Has that changed average commission rates on the single family brokerage side?
- [50:26]
C
Not much, not much at all. It was a big, big concern, but it really hasn't materialized. I'd say very marginal, if at anything. And I think that, you know, is a positive. Obviously we don't, we, we can get into details of it, but I think the industry is at least a little bit of a sigh of relief for the, from the Realtor's perspective. When I think about M and A more broadly though, I think thinking about the developers Single family developers, they will have to continue to acquire more builders, private builders, because they need growth. If they can't get it through greenfield and expanding into new markets, I think there's a lot of opportunities for them to continue to acquire private operators to provide inorganic growth. With that said, it's also from a private builder's perspective, their cost of capital is much higher and there's a lot of, you know, call it aging out or succession plans that maybe there's not the family to take over. So I anticipate more M and A in home building from, from competitive problems that they face dealing with builders that are offering massive buy downs and they can't compete or they can't. Those costs are just too, too inhibited for them. So I think that will be the case whether there's not much left on the real estate side to consolidate. And similarly in the mortgage arena, I think you'll see whether smaller players that will get acquired, but nothing significant that we would anticipate. In building product world, which we also cover, I think there'll be probably more M and A and that's also a function of whether it's lack of succession or just the cost of operations. We also started following furniture retailers and expect more consolidation there as well. So stay tuned.
- [52:06]
B
It's interesting, on the consolidation in the single family home building space, I think the number was back in the early 2000s, 20% of the industry was public and now it's over 50%. Am I right on that transition over the last 25 years?
- [52:22]
C
Yeah, I'd say so. I don't know exactly where it was 20, 30 years ago, but today it's in the 50s. And when I did give some perspective over 30 years ago, we just say over 30. Now, Willie, I want the number good, but it was in the single digit. So it's just been massive and I think it's going to continue to move higher.
- [52:40]
B
And then you said not a lot on the commercial side as it relates to multifamily. I was talking to one of the large REITs about their basically their being in a public format and the returns that they're trying to give to their investors, that they're actually creating private vehicles to go and do investments in private vehicles sort of off the, off the back of the public vehicle and the public reit. Just because they can do things in the private format, they can't do in the public format. I hear that and I say to myself, highly unlikely that we see many more multifamily REITs going, you know, Multifamily operators going public. A do you agree with that? And then the second one to that is that it feels like there is continued aggregation of capital into the very, very large private equity firms. And what do you see happening to that sort of middle market? Do they continue to be able to raise capital and deploy capital and be active participants and competitors in the space or do you see increased consolidation of those middle market players into the big guys?
- [53:46]
C
Just given the backdrop from, you know, the landscape from an economic perspective, I think it's going to get more challenging for that mid size operator. So I do think there could be more consolidation. I don't see new entrants or more public companies coming to fruition in the REITs. You know, at least the companies that we're oper, the operators that we interact with, I don't think they have intentions of going public. I thought the SFR market might see some IPOs. I think that may change because of the backdrop that we now assume they're going to have to operate under. But in multifamily, I think just like the builders that call the middle market, they're just having a tougher time competing. And I don't think it would be any different for the multifamily middle market players.
- [54:24]
B
Final Area IV Technology. You know the, the real estate industry, there have been all sorts of, you know, thoughts about this is coming on or that's coming on and modular is coming on or Zillow's going to come and you know, completely transform the single family world. And, and we seem to get these kind of stops and starts but it seems more stops than starts. We now have AI looming out there and we talked about it previously. But do you see anything in 26 or 27 that's going to materially change the housing industry based off of technological innovation?
- [55:00]
C
I wouldn't say material materially. I mean we have builders that are definitely benefiting from AI. Whether it's their website and traffic that they analyzing all the things that go into their business, they're not hiring as much. So the where there's attrition, they don't replace those people. So I think it's marginalized at least as of today. But there are benefits to their operations that we expect will come to fruition in 26, but not materially changing the way they operate. And a few of them are leaders that are doing more than others at investing today. And some of those people you're friends with will say we'll just wait and let those other guys do it and Then we'll follow suit, because there's a lot of investment that has to come to fruition to really get to a place where AI can be that impactful. And there's only one or two companies that are actually doing that, and it's negatively impacting their P and L. But they're looking beyond the next few years, and I think it's going to take longer to materialize. But I do think there'll be a benefit for those that are investing today.
- [55:58]
B
And how do you see AI impacting Zelman, and the research that you and your team both pull together and report on, if you will?
- [56:05]
C
Well, thanks to your support and the rest of the C suite at Walker Dunlop, we have a lot of tools now and we are utilizing them. So we are utilizing the Pro ChatGPT and it allows for us to expedite and accelerate our processes. So where our surveys, where we're talking to owners and operators on a monthly basis, learning about what's happening from their perspective, you know, that takes like a week to pull together, maybe longer. And you're waiting, of course, for responses. But if we can automate that through AI, that can save significant manpower. We're doing, you know, nine surveys. So thinking about every sort of function that our, you know, research analysts are working on. Are there ways to improve it to create more efficiencies? And we're finding really that there are. We just need to continue to learn and dig in and trial other types of AI. But I'd say it's created a lot more efficiencies and I think a lot more good stuff to come.
- [56:58]
B
It's great. Thank you, Ivy. I can.
- [57:01]
C
I was hoping we would have bigger announcement today, something.
- [57:04]
B
I know, I know, but you know what? You still filled it with a lot of really important and insightful data. As, as Michael Lewis said in the big short, all roads lead to Ivy. And I'm super. You know, I can do this conversation on my own, one on one with you, and I'm really thankful that you were able to join me and share this with everyone who tunes in to hear what's going on in the housing market. So thank you, thank you, thank you. Have a great rest of your day. Most of my guests, I get to sort of say I'll see you in a year or see you in a quarter. I get. I get to see you tomorrow. So anyway, thanks, Abby.
- [57:39]
C
It was great.
- [57:39]
B
And everyone who joined us today, thank you very much for tuning in.
- [57:42]
C
Thanks, Willie.
- [57:50]
B
It.