Walker & Dunlop’s Willy Walker first hosted housing expert Ivy Zelman on the Walker Webcast five years ago. Things have changed since then.
Rather than focusing on COVID, lower interest rates, and work-from-home, Zelman (Executive Place President of Zelman, a Walker & Dunlop Company) and Walker (Chairman and CEO) discussed interest rates, sales and affordability during the hour-long August 20, 2025 Webcast.
High Earnings
One issue on the table focused on Q2 earnings, which showed growth among the housing sector’s publicly traded companies. According to Zelman, much of that performance was based on the expectation that the Federal Reserve would make cuts to the Effective Federal Funds Rate (EFFR).
However, Zelman indicated that the rate cuts are the wrong focus. “I’m less focused on what the Fed is doing and more focused on what’s really going to improve affordability,” she said. “Affordability is the worst since the early 80s, when mortgage rates were at double-digit levels.”
The issue is the assumption that rate cuts will mean improved affordability. “We know the Fed can only control the short end of the curve,” Zelman explained. “We’re less optimistic that cuts will really help improve affordability at the long end, especially given the deficit and the expectation that tariffs could lead to inflation.”
Rate Buydowns and Slumping Sales
Walker noted that homebuilders have been offering buydown rates of 3.99%; yet, even with that, home sales have significantly decreased compared to 2023 and 2024, and similar buydowns were proposed.
Zelman explained that buydowns started as interest rates spiked in 2022. “That became a catalyst for activity to improve, which did so throughout 2023,” she commented, adding that 2024 was more challenging. “I think the second half of ‘24 was a function of diminished credit quality and inflationary pressures on the first-time buyer, which had eaten into discretionary income, impacting the ability to save.” She added that credit scores are also under pressure, while delinquencies are on the rise in segments including auto loans and credit cards.
Furthermore, the 3.99% buydown is selective with homebuilders. For one thing, builders are actually buying down 100 to 150 basis points below prevailing interest rates. “If rates are 6.5%, they might go down to 5% or 4.99% rather than the 3.99% that we see advertised,” Zelman commented.
And Then, There’s Affordability
Zelman explained that today’s housing market is divided into the “haves” (seasoned homeowners with money) and the “have-nots” (first-time, lower-income homebuyers). The latter category can’t find affordable housing, and even if they do find such housing, they likely won’t have enough money to pay for it.
She explained that one reason is that a single-income homebuyer would pay 60% of their paycheck to finance, buy and own a median-priced home, especially when property taxes, homeowners’ insurance and interest are added to the mix. Furthermore, it’s becoming more difficult to save for a down payment due to a decline in discretionary income.
At the same time, homebuilders can only discount so much. They are experiencing tighter margins due to increasing costs, especially with land. “Keep in mind that the land they bought during COVID will be absorbed by the end of 2026. Land is one-third the cost of building, so that’s also been a major headwind for them,” Zelman observed.
Finally, the hope that Fed interest rate cuts will lead to affordability is a pipe dream. “The Fed can only control the short end of the curve, and we are less optimistic that it really will help improve affordability at the long end, especially given the deficit and the expectation that tariffs could lead to inflation,” Zelman explained. “Overall interest rates could be stubbornly higher for longer even if the Fed does cut.”
The Housing Shortage
Zelman went on to say that more focus needs to be directed to the shortage of affordable housing.
“We can talk about shortages until we’re blue in the face, but the real impediments to providing affordable housing start with land costs and regulatory pressures. Until we can figure out how to build houses at a more affordable price point, we’re going to have young adults living with their families and dual households that will continue to be elevated.”
She suggested that regulatory changes, such as reducing impact fees to developers, could help. Furthermore, the federal government could step in and assist. For example, the federal government could tell state governors that they will get money unless they provide more affordable housing. “I think there are some big sticks that can work, but it’s got to come from the federal level,” Zelman said.
Looking Ahead
While Zelman and Walker started the webcast by discussing what happened five years ago, they also focused on five years into the future.
The current elevated home inventory will go higher as more adults age out of their homes in 2030. Zelman commented that she had been asked who would buy those homes. Again, the concern is affordability. As families selling those homes want more than the market might be able to offer, potential buyers could be scared away.
“That’s another headwind we need to start looking at,” Zelman commented. “We’re not that far away from 2030.”
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