Zelman brings up the house at PDIS

Savannah, Ga. -- An optimistic outlook from a normally conservative housing analyst closed the final day of the ProDealer Industry Summit (PDIS) today, sending many attendees home with renewed optimism, a new take on demographics and the green light -- in theory at least -- to ask builders for price increases next year.   

Headliner Ivy Zelman of Zelman & Associates, who predicted the length and the depth of the housing slump early on, told a full audience that the acceleration of household formation, combined with a dwindling number of available rental units, has created a housing shortage that needs to be addressed immediately.

“We, as a country right now, do not have very many opportunities for shelter,” Zelman said. Renters who can’t find apartments are turning, instead, to renting single-family homes. When these come off the housing market, the available inventory drops even lower, she said. And demographics are also adding new buyers to the market as adult children finally decamp from their parents’ homes.

“It’s tough to date when you’re in your 30s and living in your mom and dad’s house,” Zelman observed. And, unlike young adults in many European counties, “people are still falling in love and getting married and having babies,” she added.

Zelman & Associates’ official forecast for 2013 is 980,000 housing starts and 1.22 million in 2014.

These factors are already leading to the sustained rise in home prices, which is at 9% year to date. “We believe we are in the beginning of a pretty strong long-term pricing cycle,” Zelman said.

Zelman & Associates also studies the home improvement industry, where it is tracking an upward trend. “The home improvement value is more dependent on the people who don’t move," Zelman said. As families grow, homes must be renovated to accommodate them. “The power of the female buyer will reignite spending on our homes,” she said.

The hottest potato in Zelman’s presentation dealt with commodity inflation and builders turning down requests for price increases; the housing analyst said a 0.5% price rise in a home’s prices can offset a 1.0% increase in labor and materials. In other words, they can do it.

“[Builders] don’t need as much price appreciation to cover building materials,” she said. “If they’re pushing back on you, I think you should have that discussion again,” she said, adding: “Builders are going to have to pay up [if] they want to make Wall Street happy.”