What's In Store For Housing In 2025? Walker & Dunlop EVP Ivy Zelman On Tech Initiatives, Risks, Inventory

The commercial real estate market may have entered a new year, but little has changed in the housing sector, which still faces challenges due to “stretched” affordability and higher-for-longer interest rates, Ivy Zelman said on this week’s Walker Webcast, hosted by Walker & Dunlop CEO Willy Walker. 

“Affordability is likely to be negatively impacted from the continuation of constraints on available supply,” said Zelman, executive vice president and co-founder of Zelman & Associates, a subsidiary of Walker & Dunlop. “Home prices are likely to still move higher, and while incomes might start to grow in more parity with home prices, we're still going to see upward pressure that might alleviate the problems that we see at the entry level.”

She added that the housing market is going to continue to be in a “slow grind” of only modest growth in 2025.

Zelman said her team reduced its existing home sales forecast modestly to account for higher-for-longer rates. It also looked at tempering its new home sales forecast, as home prices may decelerate at a faster rate than her team had anticipated. 

“Under the scenario of rates [staying] higher for longer … it just basically shaves off growth and reduces acceleration in home prices,” Zelman said.

Walker said one of the results of interest rates staying high is the Federal Reserve hasn’t gotten inflation completely under control. The industry is also worried about how potential tariffs enacted by the Trump administration could lead to further inflationary pressures, he said. 

Zelman said potential mass deportation measures by the White House could also impact homebuilding more than people anticipate. 

“[That] is definitely more of a concern, in my opinion, than even the tariffs, even though many of the [building] industry executives that we've spoken to about the risk of deportation feel as if they don't have illegal people working for them,” Zelman said. “Many of the trades that they use may not have people that are living here illegally on staff, but they sub out so much of their work and it just kind of trickles down.” 

She is also monitoring the growing discrepancy between publicly owned and independent homebuilders. Today, public builders construct more than 50% of the new homes on the market — a number that is expected to keep growing. Twenty years ago, it was a very different story.

“Just to give you perspective, when I started covering the industry 30 years ago, that number was in the high single digits,” she said. “[Public builders] have dramatically consolidated the industry, and there's more to come.”

One of the advantages of public builders is their networks of “great trade partners” that are typically large. As a result, their risk is perceived to be smaller than it is for private builders that depend more on smaller, independent trade partners, Zelman said.

Today’s housing market is increasingly about economies of scale and efficiency, allowing public builders to gain more market share. Zelman said the cost of capital for public builders is between 500 and 1,000 basis points lower than private companies. 

“I think that they're both growing organically and through acquisition to obtain the market share growth that they've had, so they're doing it in both fashions,” she said. “I would say that they also have, because of a lower cost of capital, the ability to pay more for land, and by paying more for land, they can bring more communities to market.” 

Single-family home inventory, on the other hand, was up 15% to 20% last year, which is very low relative to any historic period, Zelman said. This can partially be attributed to the “lock-in effect,” where about 75% of homeowners are locked in at mortgage rates of 5% or less. 

“What starts to happen is some people will keep the home, move, but rent it out,” she said. “They don't want to lose the asset because it’s a cheap cost of capital, and that might be an opportunity for them to retain the asset and get home appreciation longer-term.”

Alternatively, if people are moving to a more affordable market, such as from the Midwest to the Southwest, a lot of that arbitrage may allow them to overcome the lock-in effect, Zelman said. 

In Florida, for example, inventories have risen by as much as 70% in some areas, but a lot of people are now saying that they may not need a home in these areas anymore due to elevated cost of living, she said. The cost of capital is now much higher, home insurance has skyrocketed, and these homes are now more costly to maintain.

“Realtors like to joke that in a recession, there will always be the three D's to create transactions: death, divorce and default,” she said. “And even in an economy where we don't have risk of default, you have discretionary buyers and sellers that start to get really tired of waiting.” 

Walker also said technological advancements that aim to revolutionize the way single-family homes are built are few and far between. 

Other than sizable investments from large homebuilders in the modular manufacturing space, an area that “basically fell on its face,” there has been little advancement in how the market builds single-family homes, Walker said. 

“I think that there are maybe smaller initiatives that are not going to change the industry on a dime,” Zelman said. “Manufactured housing is an industry that could provide homes within 30-day periods, and yet there's so much negative perception that needs to be overcome.”

Another challenge of building modular or manufactured homes is that builders are afraid to give up their trades and put all of their eggs in one basket. They fear that if this method of construction doesn't take off, they will lose all of their existing trade partners, Zelman said. 

“I don't really see any significant initiatives,” she said. “We'd love to see more buy-in for manufactured housing, for more affordable homes.”

Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.

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

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.