Same Ivy Zelman, a Better Message
Housing industry analyst Ivy Zelman made a name for herself during the height of the housing boom by suggesting that the run couldn’t last forever. It was an unpopular message. But it was right.
But here in Las Vegas, at the 2015 BMC National Sales Meeting, Zelman’s latest market forecast and observations on the current economic climate were welcomed by the building industry audience.
Particularly welcoming for BMC was the Zelman & Associates status update of market conditions in those western states where BMC customers are most likely to live and build.
Most of these cities beat the U.S. average for overall home-building health as measured by Zelman’s proprietary index (see chart).
“Western markets are still seeing stronger-than-average population growth, because they are desirable places to live,” she said.
Zelman also offered some comforting analysis on a pair of topics that some consider to be bugaboos for the home-building industry — the attitudes of young home buyers, and, on a more serious note, the rising debt burden on college students.
Young adults enjoy city life, and they may claim a distaste for the suburbs of their parents, but the numbers consistently show a steady move to single-family dwellings as households are formed.
“Lifestyle dictates whether people will be in a single-family home or live in an apartment,” she said. “When you get to a certain age, 70% to 80% of the people are going to live in a single-family shelter, and we really do believe it has to do with love and marriage.”
The 20- to 34-year-old age group — representing two-thirds of all new households being formed — has seen strong job growth. This is also a key factor to household formation.
Zelman was more careful in describing the student debt issue. It’s commonly accepted that this debt is barring the young adult from entering the home market. However, a closer look reveals:
About a third of student debt is held by those 40 years old or older;
About 40% of student debt is related to graduate programs; and
Less than 5% of debtors hold more than $100,000, and more than 85% hold less than $50,000.
“We’re not diminishing the student loan debt crisis, but if you’re actually paying down your student debt, you’re actually buying more homes than those who don’t have a student loan debt.”
Price Point Pressure
Sure, home builders face all kinds of pressure, including the prices of sticks and bricks, Ivy Zelman said. She also predicted manufacturers will continue to raise prices.
But it’s no time to feel sorry for the home builders. Why? Their margins are doing just fine.
“Sorry, builders in the room,” she said. “Gross margins historically range from 18% to 22%. So builders in 2014 were averaging 24.5% margins. We have builders averaging 28% margins.”
Zelman expects 2015 to bring a return to a more normal range.