9th Annual Housing Summit Brings Together Hundreds of Industry Leaders

Two weeks ago, Zelman & Associates hosted its 9th Annual Housing Summit in Boston. The event attracted record attendance of over 700 institutional investors and housing industry executives. Our interactive panels included homebuilders, building products manufacturers and distributors, real estate brokers, multi-family operators and developers, single-family rental owners and mortgage lenders, providing an all-encompassing discussion of housing and its related sectors. Overall, the tone remained positive and cautiously optimistic, with many executives declaring that the housing market is situated in the middle innings of a recovery that is likely to be protracted.

After greater skepticism a year ago, the view was widely held among homebuilders that the entry-level segment of the market remains in the very early innings of the recovery and a strong growth opportunity. Despite volatile macro data in recent months, builder panelists cited steady year-over-year growth in activity in August. Additionally, margin commentary among private builders was more positive than anticipated, with all panelists forecasting stable-to-improving gross margins in 2017 given modest cost inflation and above-average pricing power.

Our mortgage panelists agreed that existing credit availability is reasonable and continues to expand on the margin as lenders target under-served borrowers and invest in technology. Most notably, Fannie Mae’s enhanced underwriting engine, which took effect in late September, will provide more flexibility for consumers with limited credit histories, directly benefiting younger buyers and minorities.

Building products executives communicated an upbeat tone on current trends and most held the view that the domestic construction markets are still in the middle of the recovery. Several private panelists noted some moderation in growth rates from 1H16, but this has not changed their optimism on the cycle. Lumpy quarterly activity has not been uncommon driven largely by weather and inventory management by larger customers but overall feedback remained mixed but favorable on balance.

Multi-family panelists discussed moderating pricing and occupancy from historically strong levels in urban locations, which stems from elevated new supply. Despite this softness, one of our panelists predicted cap rates to expand only modestly given strong investor demand largely supported by foreign capital. Suburban fundamentals remain strong. On the financing side, our panelists highlighted the recent tightening of credit availability particularly for new multi-family development; although, it was debated whether this would govern starts.

Executives leading some of the largest single-family REITs reported strong operating trends across their rental portfolios, driven by the seasoning of their businesses and limited new supply, with further rent growth expected into 2017. On the expense side, our panelists noted that technological innovation has aided margin improvement at a solid pace in recent years, with additional opportunities to increase efficiency on the horizon.

Lastly, our real estate broker participants reported solid demand at lower price points, albeit with inventory constraints remaining a challenge, whereas luxury product has seen continued softness and supply outpacing demand. From a brokerage perspective, the themes of technology and culture were focused upon, with high-quality tech-related products and services for agents and customers becoming a necessity as opposed to an option, and the importance of culture and empowering agents highlighted as a key component of successful recruitment and retention of agents.

In summary, marrying the conversations with industry executives across the various sectors with our in-depth research and analysis leaves us confident in the fundamental underpinning of housing as the key engine of growth for the economy at this point in the cycle.