“Pulling Back Makes Sense”—Ivy Zelman Breaks Down the New Construction Slowdown

 

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In a recent appearance on CNBC’s Squawk Box, Ivy Zelman of Zelman & Associates shared her take on the current housing market, just as new reports from NAHB and the U.S. Census Bureau revealed a sharp drop in builder sentiment and a slowdown in permits and completions.

The common thread? Uncertainty. Interest rates remain high, policy direction is unclear, and pricing homes has become a gamble for builders navigating both buyer fatigue and material costs.

Zelman doesn’t just skim over the biggest takeaways on builder sentiment and housing starts; she speaks to specific pain points and brings up a piece of legislation that could offer real relief for both buyers and sellers.

Byron Lazine broke down Zelman’s insights in today’s Hot Sheet: 

Read on for a quick overview of Zelman’s thoughts on home builder sentiment, new construction versus existing homes, and a NAR-backed bill that could incentivize small landlords to sell.

Confidence Falls, Activity Slows

According to the NAHB/Wells Fargo Housing Market Index, builder confidence fell six points to 34 in May, matching its November 2023 level and marking the lowest reading since December 2022.

NAHB Chairman Buddy Hughes called out the key culprits:

“Persistent elevated interest rates, policy uncertainty and building material cost factors hurt builder sentiment in May.”

Zelman wasn’t surprised.

“Demand is definitely weakened, predominantly entry-level demand, especially out in the tertiary areas…The cost of land is not abated. Builders are not in a position to raise prices. So frankly, pulling back on activity makes sense.”

And that pullback is already showing up in the numbers:

• Building permits for privately-owned housing units dropped to 1.41 million in April, down 4.7% from March and 3.2% year-over-year.
• Single-family authorizations fell to 922,000, a 5.1% decline from the previous month.
• Completions took the biggest hit—down 5.9% from March and 12.3% from April 2024—with single-family completions dropping 8.0% to 943,000.

Even more telling: 34% of builders cut prices in May (up from 29% in April), and 78% reported trouble pricing homes due to tariff-related material cost uncertainty.

Rents Are Rising Again, But So Is Pressure

While new construction demand slows, the rental market is showing signs of life.

“Given the lack of affordability in single family, we’re going to see renters stay in place longer and therefore absorptions for demand will remain very robust,” Zelman said. “We’re seeing rents that are back in the mid-single, even 6% range.”

That trend is strongest in markets outside the Sunbelt, which overbuilt during the pandemic boom. Elsewhere, Zelman sees more developers re-entering the multifamily space after a two-year lull:

“We’re seeing more activity, more developers thinking it’s a good opportunity to come to the market now.”

For investors, she suggests patience with new construction and a longer-term bet on rentals:

“We are really at trough levels of rent… and we do see re-acceleration in the rental market.”

Institutional Buyers Aren’t the Real Problem

The CNBC host brought up the political heat around Wall Street-backed single-family rental companies, which are often portrayed as the villains behind rising home prices and rents.

But Zelman pushed back hard on that narrative.

“I think the political risk has been out there for quite some time. I think it’s stabilized. But keep in mind that the institutional investors account for less than 2% of total single family rental holdings. It’s really the mom and pops that dominate that market… the politicians don’t fully understand that.”

In other words: most of the single-family rental homes aren’t owned by massive hedge funds or institutional landlords. They’re owned by small-scale investors—regular people with one or two properties.

The real issue isn’t big corporations hoarding inventory. It’s policy blind spots and tax barriers that prevent mom-and-pop investors from listing. And while Zelman brought up a proposed bill that would reduce capital gains taxes for rental home sellers, based on a May 12th update, it is not among the top tax priorities backed by the National Association of Realtors® and included in the current draft.

So, while it remains among NAR’s favored initiatives, it doesn’t appear to be an active piece of legislation.

What Agents Need to Know Right Now

The spring market isn’t delivering the momentum many were hoping for. Instead, we’re seeing rising inventory challenges, reluctant sellers, fatigued buyers, and increasingly cautious builders.

Here’s what real estate professionals should take away:

1. Affordability remains the #1 obstacle. Mortgage rates are back near 7%, and many buyers have hit pause.
2. Builder confidence is near a 2-year low. Builders are pulling back in the face of weak demand and pricing pressure.
3. Rental demand is rising. With single-family affordability out of reach, more people are staying put, and developers are taking note.
4. Markets like Florida, Texas, and Denver are under pressure. Even move-up buyers are showing signs of hesitation in production-heavy markets.

With builders scaling back and buyers holding off, the second half of the year will hinge on whether affordability improves or more sellers decide to make a move. For agents, that means staying close to the data and even closer to the consumer mindset.

Sarah Lentz | May 20, 2025 | Housing Market

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