• Ivy Zelman predicted the housing market downturn in the 2000s and in 2022.
  • She told Insider that demand for single family homes will fade, and rental rates will weaken.
  • Zelman said that’s due to a wave of apartment construction and an oncoming recession.

When Ivy Zelman says the housing market is due for a turn, people tend to listen.

Zelman, now the head of Zelman & Associates, warned that the 2000’s US housing bubble was about to burst years ahead of time. The eventual end of that bubble precipitated the Global Financial Crisis of 2007-08. A few years later, Zelman called the start of the recovery at a time most experts were still bearish.

In late 2021, when the pandemic had sent prices surging and many onlookers were predicting a long bull market for housing, Zelman said the good times were going to end sooner than people thought. And thanks to surging interest rates that made mortgages much harder to afford, they did.

So when Zelman says things are shifting in a better direction — for renters, anyway — it might be cause for celebration.

What’s in store for the housing market

Zelman believes that a tidal wave of new apartments are going to be ready for renting at the end of 2023 or early 2024, and it’s going to make a huge difference in the rents that landlords can charge.

“It feels like a storm is really brewing on multifamily at least in terms of pressure on lease rates,” she told Insider in a recent interview. “There’s just a tremendous amount of headwinds coming.”

Rents grew quickly after COVID-19 restrictions were lifted, but now those increases are dropping back to a more standard pace, which Zelman says is generally 2% to 4% per year. But that’s going to happen as a lot of new supply becomes available, which will put more pressure on prices.

“We think it’s tough sailing for the multifamily market,” she said. “Supply outstrips demand and you’re going to see that pressure lease rates, and I think the consumer will benefit from that.”

That’s becoming a widespread view thanks to a number of macroeconomic issues Zelman is watching, including an oncoming recession, tighter credit conditions, and the largest housing backlog since World War II.

As for when the storm will pass, Zelman thinks rental rates might start firming up again in 2025. 

Conditions look more balanced in other parts of the housing market, Zelman says. In the first few months of 2023, buyers were able to find some better deals, but demand is weak, in part because so many homeowners locked in mortgages at rates that seem rock-bottom compared to what is currently available.

“We’re not in the camp that a lack of inventory is a positive for the housing market,” she said. “There’s a disincentive to move even though you have substantial equity.”

She says that as lenders get strict and a recession sets in, demand for new and existing homes is going to weaken. On a nationwide level, Zelman says prices of already-built homes will probably keep declining through the end of 2024, with a recovery setting in as sales volumes pick up the following year.

Until then, Zelman says the scope of the downturn in sales and prices will be determined by how deep the recession is and how long it lasts.

“The housing market is not immune to what will ultimately be a recession with a credit crunch that has just begun,” she said.