Ivy Zelman, CEO of Zelman and Associates and one of the nation's premier housing industry analysts, spoke about the market today during the annual meeting of BMC, one of the nation's biggest building material dealers. Among her key points:

  1. Last year was disappointing, but favorable conditions remain. "We had expected 15% to 20% starts growth and it turned out to be flat." Housing starts will keep growing at 15% compound annual growth rate through the end of the decade.
  2. "The canary in the coal mine has been credit." Development and construction loan lending has finally started to rise, but access to credit remains tough. Going forward, the easing of credit “will be a tailwind.” In addition, the Obama administration has been taking steps to make qualification terms easier because it concluded its policies were holding back housing.
  3. A paucity of first-time homebuyers is putting brakes on the entire housing market, because you need those newcomers coming in and buying homes so that the people living in them now will have equity to trade up. People age 20 to 30 account for two-thirds of all incremental growth in new housing.
  4. Here’s one big reason why there are few first-time homebuyers: Builders aren’t building enough entry-level, affordable housing. "The food chain is stuck, and it starts at the entry level." For most big builders, the sweet spot is closer to $250,000 to $300,000. "Until we see credit get better, builders are going to be hesitant to even build higher-density housing."
  5. Here’s one example of pent-up demand in this cohort: At the housing market’s nadir, 14% of people aged 20 to 34 lived in multigenerational homes. The historical average is 11%. If we were to get back to that average, there’d be 800,000 new household formats every year.
  6. Millennials aren't all that their reputations suggest. There’s a view that they are unlike their parents and want to stay in multfifamily units close to downtown. "If you look at who lives in a home by age, lifestyle dictates. When you get to a certain age, 70% to 80% will want to live in a single-family shelter. It has to do with love and marriage.” Of married households, 80% live in single-family detached home.
  7. Rising rents (they went up 3% to 5% nationwide last year, and even more in the West) will increasingly push people toward buying homes. At the same time, people age 20 to 34 have seen double the growth in jobs than the nation has as a whole.
  8. Are student loans really that big a problem? For those who have defaulted on those loans, yes. But a study by the New York Federal Reserve Bank found that the largest share of loans being given to people with student loans are to people who have those loans and are paying them regularly. Also, keep in mind that about one-third of student loan debt is for people over 40., 40% of student debt is related to graduate programs, and nearly a quarter of under-35-year-olds are debt free.
  9. The effect of foreclosures on credit is declining. Seven years after a foreclosure, you can qualify for a mortgage again. So expect roughly 400,000 people to join the group of potential buyers each year.
  10. Consumers think conditions are tougher than they are. You don't need to pay 5% to 10% of a home's price as a down payment; you can get a loan with a 3% down payment. “Why doesn’t the National Association of Realtors put out ads that say you can buy a house with 3% down? There’s a huge gap between perception and reality.”
  11. Labor shortages are pervasive, but the decline in oil prices could see employment in that sector drop and thus free up some people to move into construction.
  12. Normally, production increases and then prices rise. But in recent years, prices have gone up while volumes turned out to be unsustainable. This trend is likely to return to the norm going forward: After housing prices rose 11% in 2013, they climbed only 5% in 2014 and are likely to drop to a 4% gain this year and a 2% rise in 2016.
  13. Expect building material manufacturers to push for price increases. Profit margins for big builders, which lately have been above historic averages, will revert to the mean.