Pictured above (clockwise, from upper left corner): Ivy Zelman (Zelman), Dallas Tanner (Invitation Homes), Steven DeFrancis (Cortland), Ryan Marshall (PulteGroup)
Housing is impacted by a variety of forces, from affordability and interest rates to questions of supply.
However, beneath the noise, the industry’s future will be less about today’s market cycle and more about long-term demographic shifts, according to industry experts participating in Walker & Dunlop’s “Shifting Sands of Housing” panel at its Summer Conference in Sun Valley, ID.
The hour-long panel, featured on the Walker Webcast on July 29, touched on multiple topics, including M&As, artificial intelligence and manufactured housing.
However, the discussion kept returning to one theme: Population growth, and where it takes place, will drive housing demand.
Migration and Jobs
The panelists agreed that while interest rates and affordability are the headliners today, long-term demographic shifts are becoming just as important in determining where companies invest and grow.
Moderator Ivy Zelman, Executive Vice President of Research & Securities at Zelman, a Walker & Dunlop Company, launched the discussion by revisiting research from the company’s “Cradle to Grave” report, which showed how an aging population, below-replacement birth rates, and slower immigration could impact future household formation.
For Ryan Marshall, President and CEO of PultieGroup, Inc., the issue goes beyond eyeing migration patterns. “We also talk about where the jobs are going, because ultimately, population follows the jobs,” he said.
Steven DeFrancis, Founder and CEO of Cortland, agreed with that perspective, adding that many markets where jobs and population are expanding are also grappling with multifamily oversupply. He said that major coastal markets are doing well in the multifamily space, though “in most of these places, if they don’t have any immigration, they’re losing population.”
Can Supply Solve Affordability?
Along the lines of affordability, Invitation Homes’ President and CEO Dallas Tanner indicated that the recently passed “21st Century ROAD to Housing Act” offers some benefits, including making it easier for developers and operators. He also said he was impressed by the bill’s bipartisan nature.
Tanner also argued that an increase in supply won’t solve the affordability scenario.
“If there isn’t demand in a particular area, “we’re probably not going to take the risk,” he said. “You have to be incentivized in some parts of the country that might want more housing units. There has to be some sort of risk-reward trade-off.”
Then there’s the question about whether America even needs more housing units. The panelists said that the issue isn’t that black or white. On the one hand, there is a critical shortage of affordable housing. On the other hand, high-end markets continue to work through the impact of post-pandemic building.
Still, “we do not have enough affordable housing, and I don’t know that we can solve that,” DeFrancis said. “I don’t know the solution, but it’s not to get the developers just to build more housing.”
Marshall noted that builders are struggling in the entry-level segment. Although first-time buyers remain an important customer base, elevated home prices and mortgage rates have made affordability increasingly difficult.
Tanner said the housing market is also a victim of the “lock-in effect,” in which many homeowners don’t want to sell because they’re carrying low mortgage rates. “People aren’t focused on ‘let me go ahead and burn my awesome three-and-a-half percentage mortgage rate, then let me go buy a five-and-three-quarter rate, and see my payment go up by 60%,’” he added.
Where the Technology Is
The session ended with a look at artificial intelligence. Rather than viewing AI as a disruptive, job-replacement technology, the panelists focused on how its practical applications improved daily operations.
DeFrancis said that Cortland is incorporating AI into property operations, underwriting and construction workflows and is evaluating its long-term impact on employment. Marshall, with Pulte, said that the technology is used to improve employee productivity and streamline mortgage origination.
“It costs us $9,000 to manufacture a loan, $9,000 worth of paperwork to create a 30-year fixed-rate mortgage,” Marshall said. “It’s absolutely crazy. I think there’s a big opportunity in that business where we can greatly reduce the cost and labor hours that go into originating a loan.”
Invitation Homes uses AI to assist with leasing, acquisitions and internal reporting. The technology has allowed employees to process information more quickly and make faster operational decisions, Tanner said.
At the same time, none of the industry experts suggested that AI has changed their business models. Instead, the technology is becoming an increasingly valuable tool for improving productivity and allowing employees to focus on higher-value work.
Demographics, market selection, affordability and technology are presenting challenges to the housing industry, with the panelists saying that long-term success depends less on reacting to short-term market swings. Instead, the focus is on positioning their companies to anticipate the structural changes reshaping housing demand over the coming decades.
Neither Zelman, Ivy Zelman or her family own PHM or INVH stock. INVH is an investment banking client of Zelman Partners, LLC. Zelman has received compensation for products or services other than investment banking services. Zelman is a Walker & Dunlop company. Zelman Partners, LLC is a registered broker-dealer and member of FINRA and SIPC (Securities Investor Protection Corporation).
On-demand replays of the July 29 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple. Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.
The post Walker Webcast: Demographics, Not Interest Rates, Will Shape Housing’s Future appeared first on Connect CRE.
