Walker & Dunlop's Ivy Zelman On Land Costs, Rate Cuts, Affordability And 'Tapped-Out' Consumers

Interest rates are top of mind for nearly every commercial real estate professional. When will the Federal Reserve cut rates? Will the market see two rate cuts this year? Will it see any rate cuts at all?

On this week’s Walker Webcast, Walker & Dunlop CEO Willy Walker spoke with Ivy Zelman, executive vice president and co-founder of Zelman, a subsidiary of Walker & Dunlop, who said that many investors are expecting possibly two 25-basis-point cuts by the end of the year. 

This optimistic expectation is what’s driving housing-related stocks to jump fairly significantly year-over-year. Walker cited that the mortgage industry is up about 48% and homebuilders are up 11%, according to Zelman’s research. For reference, the S&P 500 has gained 8% year-over-year.

“As long as there's the perspective that the Fed is going to cut, whether it's two cuts before year-end or continuing to cut into 2026 as the likelihood that Powell steps down and we get a replacement, that seems to be what's driving stock performance right now,” she said. 

Zelman said that if or when the Fed does cut rates, that decision will largely hinge on unemployment numbers, rather than other economic factors such as inflation. If job growth slows and unemployment rises to a threshold of 4.5% or higher, the Fed will be more likely to cut rates quickly, she said, especially if Fed leadership switches hands. 

“The expectation [moving forward] is we have a dovish governor replacing Jerome Powell, and I think any upward pressure on unemployment would give enough ammunition to a dovish governor to start cutting,” she said. “It really depends on who's sitting in that seat.”

Walker and Zelman then dove into the hotly debated and widely discussed topic of tariffs. 

Walker said that President Donald Trump’s chart, which was unveiled in the Rose Garden on “Liberation Day,” hasn't come to fruition, as many new trade deals have been forged between the U.S. and various countries, including Japan, South Korea and the UK. He added that Zelman previously predicted that these tariffs would add a 3% to 5% inflationary pressure on building costs — potentially stirring up greater uncertainty for the housing market. 

Four months later, Zelman said that in the new construction sector, tariffs have had no inflationary impact. In fact, direct costs are down for most homebuilders, she said.

“Costs are down for most builders, call it 1% to 3% for the largest builders in our sector, and that's really given the fact that spring was a bust,” Zelman said. “Back in January, the spring selling season didn't materialize as many would have hoped, given the lack of affordability.”

Walker dubbed Housing affordability a “real problem.” 

“Two weeks ago, we had Tucker Carlson, Laura Ingraham and Elizabeth Warren all on national television saying we have a housing crisis in America,” Walker said. “When you have people across the [political] spectrum saying we have a housing crisis because housing has become unaffordable, and yet we have large publics who are making good money and seemingly don’t have an incentive to increase production, where does that come from?”

Zelman said there is no shortage of housing, but there is a shortage of strictly affordable housing — and the proof is in the numbers. 

In the 1980s and 1990s, about 15% of 20-to-39-year-olds lived with their parents. This number has sharply increased to 21%-plus, she said. This is because the younger generation simply can't afford to “decouple” from their families because they either lack the credit or down payment to do so, she said. 

“Whether [we’re short] 2 million, 3 million, 4 million housing units, I don’t really care — we’re not providing affordable housing,” Zelman said. 

Walker said only 12% of 30-year-olds in the U.S. today are married and own a home. The average age of a first-time homebuyer has risen to 38. 

How this shortage can be solved isn’t clear-cut, Zelman said.

“I don't have a good answer for you,” she said. “I know that there are regulatory changes that could be made that would in fact help the impact fees that are pushed to developers, causing significant headwinds for providing affordable housing. It’s really the local market that dictates it.” 

Big builders such as Lennar Corp. are experimenting with strategies to drive affordability, Zelman said, including building more homes per acre and creating developments farther out from urban cores, given that land is much more affordable in those areas. But ultimately, affordability hinges on lowering interest rates and regulatory change. 

She added that more builders are constructing homes built for rental purposes so that people who want a single-family experience and can't afford the down payment can at least rent a single-family home. That isn't a legitimate solution, however.

“You can't create wealth over a lifetime by renting,” she said.

Due to a lack of affordability, the U.S. consumer is “tapped out,” Zelman added. Though renting is more affordable than owning a home, rent-to-income ratios are still elevated. 

“If you're the beneficiary of owning a home and prices are still going up or you're a landlord and rents are still going up, it's great, but the consumers [in those markets] are definitely the losers in those situations,” she said. 

From 2000 to 2024, U.S. household income rose by 109%, Zelman said. Other nondiscretionary categories like healthcare, utilities and education were all up significantly more than that. The mortgage delinquency data for Ginnie Mae is rising much higher and faster compared to other vintages, she added. 

Coupling these factors with student loans, held by almost 45 million people in the U.S., the average consumer is facing financial strain, but especially the “subprime” borrower living paycheck to paycheck. 

“The credit data that we'll be showing in more detail at our housing summit is directionally going the wrong way for all categories, whether it's back to more normalized levels versus where it was during Covid, when we were throwing stimulus money around,” she said. “We're now on the flip side of that, and I don't know the magnitude of it, but it doesn't look good.”

Zelman, a Walker & Dunlop company, is hosting its 18th annual Housing Summit on Sept. 11 and 12 in Boston. Click here to register. 

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This article was produced in collaboration between Studio B and Walker & Dunlop. Bisnow news staff was not involved in the production of this content.

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