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Regardless of whether you’re a full-time real estate investor, a part-time real estate investor or a real estate investor who is getting started and you haven’t even acquired your first property, it’s important for you to know where the real estate market is. What is going on with the housing market at the macro level and at the micro level? Meaning at the local level, the market you live in, the market you’re investing in or where you’re thinking of investing in. It may be where you have invested and you are potentially looking to expand in that market or sell property in that market or do a tax-deferred exchange into other markets. These are all factors that you need to think about.
I’ll give you an example. If you’re looking at a market and there are more buyers than there are homes for sale, you’re essentially in a seller’s market. What does that mean? You have to consider that prices are probably going up. It’s an appreciating market. There might be competitive bidding situations. You may not be getting the best deal. You might be in a situation where if you want to invest in that market, you might be paying at or above market value. Maybe rents are being compressed. You’re not going to get the same rent-to-price ratio, that rent-to-value ratio that you would ideally like to have. That forces you to look into another market. This is just one of many considerations. These are the conditions that exist both at the national level, the local level and even at the regional level.
There are people out there who I definitely want to get on the show, one of which is now. These are people who study the markets. They study data and they talk to builders. They talk to lenders and people in the industry. They look at market cycles and real estate cycles. They look at where things are at or where there is demand. They look at demographics to see who’s coming up like the Millennials and maybe who is making a shift, potentially the Baby Boomers. These are all things that help you become a more informed real estate investor and a business person. If you are going to be in real estate investing, these are things that you need to consider. My guest is going to be talking about these important factors and metrics that we should be looking at as real estate investors.
If you missed our last episode, be sure to listen to How to Pay LOW or NO Taxes Using Cost Segregation.
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Where Is The Housing Market Headed? with Ivy Zelman
It’s my pleasure to welcome Ivy Zelman to the show. Ivy is the CEO and Founder of Zelman & Associates, LLC, a company that she founded back in 2007. Her firm leverages housing market expertise, extensive surveys of industry executives and rigorous financial analysis to deliver proprietary research and advice to global institutional investors. Her team is widely respected for its unbiased views, depth of data and knowledge and a willingness to offer counter consensus opinions when necessary. That’s why I wanted her on the show. Ivy, welcome to the show.
Thank you for having me.
It’s an honor to have you on. You’ve been doing research for many years. You have a very interesting background. I like the fact that you provide some interesting perspective on the housing market, the direction we’re going, demographics and interest rates. All kinds of neat stuff that you put out in a biweekly report called the Z Report. Why don’t you tell us a little bit about yourself or your background, so our audience has some perspective of who you are and where you’re coming from?
I’ve been a Housing Equity Analyst for years. In layman terms it means that I’ve been studying the US residential housing market for most of my adult life. I have been fortunate to have worked with two large firms who were great to me. Salomon Brothers is where I started after graduating from night school. I went to undergraduate at night. It took me six years to finally get through it and I went to Salomon Brothers. Then I went to Credit Suisse for a decade and then started my own firm in 2007. It’s been a concentrated journey. I also had three kids along the way too, which was a lot harder. They are a lot harder than working and calling housing markets.
You have a very broad background and perspective, which is great for what our audience wants to hear. Let’s start off with the general and broad. This is a very common question. It’s something that I have an issue with when I hear a question this broad and that is, where are we in the housing cycle? I find that there are mixed opinions on this. What’s your take and your perspective on that question of where we are in the housing cycle?
If you’re talking about the new construction market, it’s a little bit different than just in general residential real estate. I feel like the home price appreciation that the overall country has enjoyed off of the 2011 trust. We’ve been now seeing home prices appreciate for six years at an above-average clip. It feels like home price inflation is at a later part of the cycle than on the volume and transaction side. There are different dynamics but pricing historically has followed a strong unit growth. In this cycle in 2012, prices took off. We’ve had very strong price appreciation and volumes were slower to pick up. Now, the United States is at a deficit for shelter. We believe that we’re building well-under what we need to supply incremental households and those homes that are being demolished that need to be replaced. There’s a shortage for actual residential units, but pricing has been at an elevated level, giving varied constraints around the availability of residential real estate.
I’ve heard that we’re producing somewhere around 750,000 units per year and we need closer to one million. Is that in line with what you know?
If you’re referring to single-family homes, we’re probably a little closer like 850,000. We’re also adding to that 400,000 multifamily units. We’re closer to 1.2 million, but we have historically looked at a normalized housing market and that one and a half plus that we need based on household formations plus the demolitions. Formulaically, we’re at about a 20% to 25% deficit to what would be normal supply. That is 100% on the residential single-family side of the market. In multi-family, we’re about 15% above normal.
How long has that been going on for? If you compound that year-after-year, that’s a tremendous pent-up demand for housing.
Coming out of the cycle, builders would generally call it shell-shocked. They were six feet under, nearly dead and buried and didn’t have the capital to access. Nor did they have the confidence that they could build and see the type of absorptions and overall pricing that would give them the returns to warrant the deployment of that capital. Mortgages were tight. They didn’t think the consumer could get a mortgage. There were a lot of headwinds that kept them more cautious. We saw what they were willing to build was what they had were right in the portfolio. That was what I liked to call straight down the fairway, where they knew the consumer was maybe more fluent. It was closer and in better locations. They were cautious about building in the exurbs, emerging suburbs where people have to drive to qualify. That was also met with a lot of trepidation that people want to only walk to work.
We’re seeing an urbanization and a rhetoric around homeownership, that rates are going to plummet. We had the likes of very influential people saying that the US is in a secular decline on homeownership. The builders from a sentiment perspective, their psychological perspective were very apprehensive. The machine didn’t get started in any significant way until 2015 to build. When they started to build, they were met with a lot of resistance from municipalities that weren’t equipped to approve land and get entitlements through the system. They had a labor shortage. They were builders in many cases who wanted to build, who couldn’t get the ingredients to get through the pipeline, the amount of loss that they would have liked to.
That’s been a logjam that’s continued to constraint the ability to grow faster than high-single to low double-digit unit growth. It does compound the risk that we’re building up a lot of pent-up demand. A lot of frustrated buyers, a lot of people who are renting homes who are probably looking to increase space as they are married with a toddler and one on the way, if they don’t get some bigger houses, they’re going to end up divorced. There are a lot of people who are sitting in apartments and/or living with in-laws who would like to have units out there that they could buy, but there’s no availability especially at the entry level.
With all that pent-up demand, at least the markets that we’re in and that I researched, we’re seeing slowing price appreciation. That doesn’t mean negative or no appreciation, but we’re seeing it slow in many if not most markets around the US. In general terms, do you expect home prices to continue to rise or do you think that this slowing price appreciation is the trend for the foreseeable future?
We think the rate of growth of home prices will slow, they’ll still increase. This year they’re up probably about 5.5% to 6% and that’s following again robust inflation that’s been that or higher since 2012. I think what we’re expecting is that home prices could decline 4%, maybe even there’ll be more pressure than that. The reason why we don’t think we’ll see further deceleration is that if you look at the level of inventory of units available for sale. We think about it and the two languages we speak to is inventory available for sale as a percent of the number of households in the United States. That you can go back and look 30 years plus. We are pretty much at record-low inventories. Demand is significantly outstripping the available inventories that are listed for sale.
Even some of those units that are listed are obsolete or are in a less desirable location. It’s even understating the constraints. If you look at that, dividing it by price point, it tells a little bit of a different picture. If you think about what the realtors in the industry and real estate talk about, they talk about a normalized market is about a six month’s supply of inventory. I don’t know if that’s the right number that’s truly normal. Six months is at least been the rule of thumb. It would be a balanced market where you don’t see appreciation and you don’t see deflation. When you go below six months, you have pricing power and it’s a seller’s market. When you go above six months, it’s a buyer’s market and you see deflation. If you look at the entry level, the month’s supply is right now about 2.7 months.
As you move up, the first-time buyer is 3.5. By the time you get to luxury and we define luxury, the top 5%, you’re closer to a nine to ten month’s supply. We are seeing pressure at that luxury price point in some significant pressure from the 2014 peak in home prices for luxury. Even if you tried to sell in 2018 but you bought in 2012, you’d probably still make money because the price appreciation around 2012 to 2014 was double digit per year or more than north of 20% in some of those cities like New York and Miami. If you bought in late ’14, you would probably see price deflation of 20%, 30% in New York City right now. It depends on when you bought, but the constraints at the rest of the bread and butter in the United States, interestingly we don’t think about markets at absolute prices. Because in Cleveland where I live, let’s say $130,000 as an entry-level priced home and luxury starts at say $600,000.
Every market is different. If you go into New York in the suburbs, you’re looking at probably $900,000 to $1 million as an entry-level home. The same thing in the California markets and you’re at north of $4 million to $5 million for luxury. Because every market has its own bookends, what is very difficult to say is how much of the housing market is at risk because luxury is seeing that deflation. We try to simplify it by saying roughly about 15% of homes in the United States that are listed for sale are over at $500,000. The bread and butter of the US is still below $500,000, which is still in our minds pretty healthy. Right now, things are starting to slow and a lot of it is sticker shock with rates moving up and the robust price appreciation we’ve seen. Consumers are concerned that they may have missed an opportunity to buy, especially because their memories are long from the Great Recession and they’re worried about buying at peak prices right now. Psychologically, there has been definitely a negative impact as rates have spiked. We see a pause and that’s leading to a slower overall activity in the markets.
That certainly emphasizes the point that every market is local. This is why I don’t like these questions of how’s the real estate market doing because the question I ask is, “Which real estate market are you talking about?” I’m sure the Baby Boomers and the Millennials play into these trends and by price point. I would imagine that Millennials are looking for entry-level homes whereas Baby Boomers might be looking to downsize. Here’s an interesting statistic. There are roughly 78 million Baby Boomers in the country plus or minus depending on whose numbers you’re looking at. ARP did a survey not too long ago. They discovered that 87% of Baby Boomers said that they want to stay in the homes that they’re in upon retirement. I don’t know how that affects housing markets, but aren’t Baby Boomers downsizing into smaller homes or rentals or is that just a myth?
There are definitely people that would like to downsize. There are some constraints around their ability to execute on that dream. One of which is that they have to sell their home and have enough equity to buy another home and find a location that they want. That would literally be where their kids want to visit them or their grandchildren are close enough. If you go back and look at what people do at different ages in their life, you look at a 20 to 25-year-old, of that cohort, they’re moving 50% of the time as opposed to when you get to over 50, only 6% will move in that age cohort. That means as we age, the turnover of housing slows because we stay. We age in place. To me, that 87% is not surprising whatsoever. We would put the number closer to 95% would have chosen to stay and age in place based on the stats that we’ve looked at historically. From a secular perspective, maybe there is an increase in people’s willingness to downsize or move into urban markets at an accelerated pace. It’s just not as big as people think, I guess anecdotally they expect it to be.
If we look on the other side of the spectrum away from Baby Boomers and we look at Millennials, the leading edge of the Millennials is starting to move out of their parents’ homes. Do you think Millennials want to own homes or are they still spooked from the Great Recession of 2008?
They definitely want to buy homes. There have been lots of surveys to support that. Bank of America did a survey that over 100,000 Millennials said that 80% of them wanting to be homeowners is a priority. The question is do they have the down payment? Do they have the ability to get mortgage approval? Can they find a home in a neighborhood they want to be in? I think desire is there. We’ve seen a lot of statistics including homeownership rates that have been ticking higher. We had four consecutive increases off the trough and we’re at roughly 64% homeownership rate. The Millennials are representing nearly 50% of all purchases of homes.
If you looked at a chart over the last four years, it looks like a hockey stick. You’ve seen a big increase in mortgages that are from Millennials supporting that they do want to buy and they are buying. They are leaving home, but it’s still elevated relative to historical levels. We think some of that is nurturing parents that let their kids stay post-college to save money. Some people will call them helicopter parents and whatever you want to call it. There’s no question that people are staying, maybe living with their parents longer. We may not get back to what historical trend lines have been, but we do think once they get married and start having a family, that lifestyle decision will dictate the need for single-family shelter.
An interesting stat that blows people away is that when you’re looking at how people live, which is more important than what mortgage rates are or anything, lifestyle will determine the type of shelter they have. When you look at people who are married with two children plus, 82% roughly of them live in a single-family home. If you think about Millennials and our numbers are close to yours, 75 million Millennials. The oldest in their early 30s as they’re now moving into marriage and family formation. Imagine the tailwind and the need for single-family shelter if our numbers are right. It’s a very powerful tailwind that will keep the housing market elongated from the volume side of things. As long as wages and employment are continuing to directionally go in the right way and confidence is high, the housing cycle should be in the next several years at a minimum. The question is, can they afford it and at what price is it? Those are the questions that a lot of the investment community are asking. If you’re a married couple with a toddler and one on the way and you’re living in 900 square feet, your decision is about needing more space. Another question is, “How much can I afford?” Maybe you’ll buy a smaller home or a home that has fewer bells and whistles. That lifestyle need is going to drive you to that single-family shelter from a multi-family shelter in our opinion.
I’ve always had mixed feelings about the Millennials. The leading edge, the older Millennials are starting families and they’re the ones that are moving out and wanting to buy homes. There’s a bulk of those Millennials that do want to leave their parents’ homes. They want independence. They want to live somewhere, but they’re not ready to buy or they don’t want to buy because they want that freedom of being able to be mobile and get around, whether it’s community to community or city to city and get up and go. That’s good news if it’s true for us as real estate investors because that Millennial pool is so large. They’re going to need good quality rental housing stock, which we do provide. I have my eyes and my targets set on that bell curve of Millennials out there who don’t want to start a family, at least not yet. I’ve heard that they’re wanting to start families later in life compared to generations of the past. I don’t know if that’s true. I don’t know what you’ve heard but the Millennial market is a good market.
We’ve definitely seen a shift in delaying marriage and family formation. One of the types of shelter when I mentioned 82% single-family, that’s not distinguishing whether they own it or rent it. Now, about 13% of households rent a home. That’s up from roughly 10% from pre-recession, the Great Recession. We’ve seen a significant increase. A lot of the people who lost their home to foreclosure went across the street and rented the same size home for half the monthly payment. There’s no question that the single-family rental market is a big part of the shelter out there. Right now, it’s very constrained. Occupancies are north of 95% and rents are inflating at 3% to 5% annualized rate.
Even looking for a single-family rental is not necessarily easy to find. The multifamily market, the first time you leave home, typically the perception is you’re going to move into an apartment. There’s a lot of supply in that market that continues to get leased up. You’re seeing decelerating levels of rent growth, but there is a multi-decade work in progress supply pipeline coming predominantly in the urban core. Renters are going to get some sweetheart deals as that supply gets delivered. Labor, municipality and development constraints have elongated the pipeline, but there’s going to be a lot of supply hitting the rental market and multifamily over the next one to two years that is going to make it more of a consumer-friendly choice on the rent side.
To be clear, when you say multifamily or multiunit, are you talking above residential four units like small, medium-size apartments?
Yes, above four units. Two to four units are not multifamily. We see that the market is predominantly in the high-rise urban core and Class A. Suburban Class A is where there’s been this wall of capital. Maybe many of your audience have benefited from the strength of the rental market as tight as it was. There’s a significant pipeline. There’s still a lot of money chasing this asset class and basically raising funds to go ahead and buy more of this type of assets. I call it drinking the Kool-Aid a bit on the multifamily. If you look at the number of 20 to 34-year-olds, the percent of people in that age cohort, the population over the past two decades, we’ve seen an acceleration of people who are in the age 20 to 34-year-olds. It’s been a sweet spot that has supported the need for more apartments.
As we go out in 2025, 2030, the number of 20 to 34-year-olds are going to decline in absolute numbers. Whereas the flip side, the number of 35 to 44-year-olds, which had been down year-over-year, negative until the last years. It’s going to see a nice increase, a pretty strong increase in the number of people in those cohorts. Where multifamily has been hot and it’s been the right asset class, we’re going to be seeing that swing. It’s going to be single-family that’s going to be significantly in favor and that’s where the capital should be going right now as opposed to in multifamily. Valuations are very rich in apartments right now. They’re at very expensive levels relative to history and single-family. It’s not cheap necessarily to develop but comparatively, it’s a bargain.
Cap rates have been compressed. It’s tough to find even a six cap in an apartment these days.
You’ll see urban Class A with a four cap and in some cases even we’ve seen sub-four caps.
Everything you’ve said is very exciting. It’s very bullish for us as real estate investors who are focused on the single-family duplex and fourplex space. It sounds like there’s this pent-up demand. It’s almost like a boomerang effect where we’re going to have growing demand back into that section or that sector. That’s the trend that you’re painting the picture.
The sentiment has been improved in terms of the rhetoric around people only wanting to walk to work. You’re not hearing that as much and you see homeownership rates are taking higher. Years from now, housing and homeownership will be the rage again. People are going to recognize that we’re going to continue to see extremely favorable tailwinds generate good returns for people who got in early into the single-family market. The rental single-family market is going to be a very attractive place to be too. The cash-on-cash returns are already very compelling. The challenge is that there’s not a lot of inventory. You mentioned the constraints on inventory. We’re seeing some developers developing to rent.
Locally in my neighborhood, the A-ring of the Northeast Ohio and Cleveland suburb, I was talking with one of the leading brokers here, Howard Hanna. Right around five to ten minutes from my house, there are 30 units that are attached townhomes and a few single-family rental homes that you can rent for $3,000 a month. The first phase got leased up within a few weeks. It was amazing that the demand for that product was as strong as it was. That goes back to your point about flexibility and maybe people who haven’t started families yet. They even had empty nesters that were downsizing and looking to have more flexibility who didn’t want to be weighed down by ownership and couldn’t find something on the for-sale side that they wanted. It’s an interesting segment of the overall shelter market, but it’s constrained like the for-sale market is.
We just had a call with one of our builders in Florida. We are now offering new construction homes and duplexes in three or four Florida markets. One of the things that we were talking about is how demand and sales have picked up. It’s very brisk for new construction homes. There have been years of pent-up demand for new housing. What’s interesting though is why is the new construction market been so slow to recover? Is it because of financing and credit or is it something else?
Zillow did a survey in 2017 of 13,000 consumers with 160 questions and the one that stood out to me as the number one consideration for a Millennial to buy a home is they want it to be new. They want amenities. I can definitely see my three children saying they want amenities and they want it brand-new. It’s the do-it-for-me crowd, not do-it-myself. That is a backdrop for why new construction is going to continue to do extremely well. The reason it’s slower out of the gate has been the builders’ initial reluctance. They’re not feeling confident enough that they could see the demand there. The rhetoric was so much around homeownership rates are going to be under pressure and people want to rent. They want flexibility. That kept him on the sidelines and not pursuing more aggressively development. When they tried to develop, there were constraints around getting land developed through the pipeline and then labor constraints on being able to go vertical. That’s been a regulator for an industry that’s historically been a boom-bust industry. It’s not necessarily a bad thing. Let’s just put some guardrails around their ability to grow. That’s why we look at growth rates in that age of 12% range and not likely to go above that. That’s not necessarily a bad thing. It just elongates the cycle.
I’ve seen the build-to-rent model picking up steam over the last years. It’s nothing new. It’s something that’s been around and now it’s become more of an interest to investors and builders.
It’s more of an interest because there’s a track record. There are two public equities that are showing the returns and the overall cashflows. There’s some type of business model that you can see that it works. It’s an industry that’s been around for decades and it was 10% of all households. The difference now is it’s not a sleepy industry. You’ve got institutional investors who are professionalizing the industry with technology, with 24/7 call centers. They’re requiring that these homes are upgraded and they’re getting the facelift needed. It’s more competitive than it was historically where if your plumbing was not working, it might be a few days before you hear back from your landlord. What consumers are demanding now is a much higher level of professionalism. That’s making the overall industry see an upgrade and the perception around that asset class.
Looking at that from the other side of the spectrum, when we talked about flippers and whatnot, what has been the impact, if any, on the real estate market from all these flipping shows on TV? There’s increased interest in flipping houses or even investors buying, fixing and then renting. Has there been an impact?
I think it’s a real positive thing because the age of the housing stock is close to 44 years old. If you’re East of the Mississippi and in the Northeast, depending on what market, it’s well into the 50, 60-year-old stock. A lot of people who may want to buy homes can’t afford to buy those homes and then spend the extra incremental dollars to fix them up. The flippers serve a purpose. We are creating an opportunity for people to buy homes that otherwise we wouldn’t have the capital. When you’re buying a home, right now, you can’t mortgage the remodeling costs. There’s some speculation that that’s a product offering that might come to fruition. As of right now, it’s a separate cost to you relative to the mortgage. It’s enabled a needed uplift or a facelift for an aging stock.
The one challenge we’ll have with existing homeowners now is that we continue to see aging in place. More people choose to age in place. When they do try to sell their homes, there’s a big disconnect between what they think their home is worth and what consumers are willing to pay for it. What you’ll hear from people is, “I just redid my bathroom, I just redid the kitchen,” and you’re like, “When?” They’re like, “2009.” You’re like, “That was years ago. It’s dated.” Now, you have a lot of homes that are north of twenty years old. If you look at the number of listings in the United States, about 60% that are listed are at least twenty years old or older. A home that’s twenty years old is not a smart home for sure. It’s probably got lower ceilings or boxy. They want open floor plans, they want Wi-Fi certified. Whether it’s Alexa smart home or Google, it’s not a match for what consumers want. That’s going to be a challenge. Therefore, the flippers should continue to do well. It’s still a good business that has a long life to it ahead
We need the inventory. The bulk of what we’ve been selling since 2010 has been completely refurbished homes in well-established mature neighborhoods which have strong rental demand. That’s great. That’s what we want but there was no new construction product for the longest time, so we didn’t have a choice. It was just a lot of housing stock that needed to be renovated and put back on the market as a turnkey rental.
Inventories are going to remain more constraint, not just from aging in place but a rather startling stat is if you think about where mortgage rates are right now, it’s right below 5%. We’ve had the bond market rallying now. Let’s say its 4.75% to 5%. Mortgage rates are not transferable. A lot of people have mortgage rates well-below the current levels. It’s 80% of all mortgage holders in the United States have a mortgage rate below 5%. When you think about the fact that people are starting to look at the risks that mortgage rates are going to go even higher than they are right now, it could be another impediment for them to sell, which would further constraint the available supply in the marketplace. Another thing that headwind on inventories staying low would be arguably another reason. The home prices can still continue to rise as well as that need for the flippers and for rental stock.
Do you have a prediction on mortgage rates? I know it’s a crystal ball question.
We don’t predict them. If the economy is doing well and interest rates are moving up, the consumer affordability now is still favorable. It’s below normal affordability for an entry-level buyer. We think about what’s normal affordability. If you took the median existing home price and you look at what percent of your gross income goes to the mortgage and interest in the insurance payment. Historically, that’s been about 40% of your gross single income household. Right now, we’re running about 37%. We’re still below what it’s been historically. Mortgage rates would have to go to 5.75 before we get to that normal trend line. Not to say that 40% is the right number, but that’s what it’s been normalized over years.
The credit box has been almost back to normal when you go back to 2012 and banks weren’t willing to lend. We do a mortgage survey that is a pretty robust sample size of about 15% of all mortgage originators in the country. Zero is you can fog a mirror and get a mortgage on underwriting criteria and 100 is you can’t do anything. You can never get a mortgage. 50 call it normal. In 2012, you’re at roughly an 80. We’re now approaching 50 or at 54 on our scale. The credit availability has improved. Because refi’s have gotten pounded and are plummeting, we’re seeing a lot more competition for every incremental purchase mortgage. You’re seeing even more favorable credit that’s going to be accessible to consumers. Affordability is still good and the credit is very reasonable and improving. What happens with the consumer is they get sticker shock. When we look at our builder surveys or our broker surveys, there’s a pause going on in the marketplace. Eventually, the consumer digests the higher rates and thinks about what their lifestyle dictates. Right now where rates are, throw a dart. The answer would be most people think it’s going higher, not lower.
You’re talking about affordability but that was a snapshot of where we are now. We’ve seen very strong home price appreciation or inflation over the last years, particularly in Washington State, Nevada, California, Oregon and even Idaho. Going forward, where do you feel we’re going in terms of affordability in general terms?
It’s a headwind now because we still expect home prices to rise. I’ll be at a decelerating pace because the inventories are still very constrained. All eyes on inventories because we are seeing in places that you mentioned, the inventory is starting to creep up. As rates are moving up, it depends on how rates move up and also wage growth. Affordability is going to remain reasonable as long as we don’t see any spike on the grade environment. From here, we should see stability. It’s relatively favorable. I’m not worried about affordability unless we have something outside of where we are has a significant increase in rates. It would be negative to the housing market.
That still sounds bullish for us as real estate investors. It’s an interesting trend. I almost don’t want to ask you this question because I don’t like to talk about the “housing market” in general terms. I don’t even like the question of how’s the housing market because then I ask the question, “What market are you talking about?” In general terms, from an investment perspective, do you have an opinion on the best or worst housing markets? I’m not necessarily referring to specific cities. They could be areas or regions of the country. Do you have any commentary on where we, as real estate investors, should be focused?
The coastal markets are where the risk would be that we may have overshot. The home prices have gone up so quickly. A lot of that supported by the lack of inventory and job growth. Markets in the Southeast and Texas, the Carolinas. I think Florida is well-positioned, especially with the tax reform, making it one of the winning states with salt. I think the Southeast and Southwestern markets should do well. Maybe even some Midwest markets. I just have not seen the same price appreciation and assuming job growth remains positive. I worry most about the high-income percentile, coastal markets where prices have been up so much. Seattle and Portland, you throw in there. Arizona and Nevada are still relatively attractive.
I think Colorado if we look at affordability. Denver is screened as one of the least affordable markets. It’s interesting though when you look at history. What you can take into consideration is the consumer who has a lot more mobility. When I was talking about the Denver market to someone locally there, they said, “We have so many inbound people from California that look how unaffordable California is. It makes Denver look like a bargain.” It’s hard for us to pinpoint where the population migrates to, but that also are variables that will dictate the strength of a housing market.
Ivy, you’re a wealth of knowledge and I love reading your articles. Tell our audience how they can find you or your website. Maybe tell us what The Z Report is all about because it’s something that I appreciate, and we should educate our audience.
The Z Report is a biweekly report. It has about eight articles. It could be read in ten, fifteen minutes with supporting charts. Each article is topical across the whole ecosystem of housing, whether you’re a broker or you’re a real estate developer, a mortgage company, building product manufacturer. Anyone in the ecosystem would find a high-level perspective. Zelman & Associates is a research firm that does a lot of proprietary research. There is very significant survey work that we do monthly and quarterly. We have some good correlations that we derive from these surveys and can triangulate the different surveys to create a full mosaic of what the trends are. Our website is ZelmanAssociates.com. The Z Report, you can learn about it there. You can also email Kim@ZelmanAssociates.com for more information. We appreciate it and we think that everyone should be reading it if they want to be knowledgeable. Knowledge is number one in every aspect. We have a trial. If they wanted a trial of The Z Report before committing, it’s something that will allow them to get a flavor for the biweekly report.
Thank you for all that, Ivy. It’s been a pleasure and an honor having you on.
I appreciate the opportunity.
Keep up the great work.
Thank you so much. Take care.
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