'Silver tsunami' to reshape the housing market: Meredith Whitney

The US housing market was plagued by high mortgage rates and low inventory in 2023. Meredith Whitney LLC Founder Meredith Whitney, who gained notoriety for predicting the 2008 financial crisis, says there will be two demographic trends impacting housing in the coming years. One is regional, with places like Texas and Florida growing while places like New York and Ohio may see population outflows. The other trend Whitney highlights is the "silver tsunami." Over the next few years, baby boomers will be turning 65. Whitney argues many of these boomers will be looking to downsize, freeing up some housing inventory. It's a trend Whitney expects to start in the latter part of 2024 and continue for the next several years.

Whitney explains that when you combine the two factors, there could be more dramatic price swings in some areas than others. In areas where there is high housing demand, the added inventory may not reduce prices as much, if at all, compared to an area where there is less demand, where a supply and demand imbalance may have a more dramatic impact on prices. Ultimately, "prices have to come down," Whitney says, anticipating that homebuilders will construct more affordable homes and existing home prices will ultimately decrease.

Whitney notes that banks don't service as many mortgages as they use to, with outside lenders picking up much of the load. Those lenders, she says, don't have as much leeway to ease lending conditions to make home buying more affordable. However, she points out the government does have programs that some Americans can take advantage of, though the servicing costs may rise as a result. Overall Whitney says "if you lower the overall home price, the serviceability becomes more affordable. That's what I think is invariably going to happen because you're going to have more seniors, the silver tsunami, selling and there are fewer buyers so the give is going to be lower home prices."

Whitney's advice? For millennials, they should wait for lower prices to buy while boomers should sell now to take advantage of higher prices.

For more Yahoo Finance housing coverage:

2024 home buying season will be better than 2023: Economist

Can homebuilder stocks defy the odds in 2024?

Housing market has looked 'bubblicious': Economist

Top housing markets for 2024: Realtor.com

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

- Let's continue the conversation. New home sales took a steep drop in November falling over 12% from October as affordability continues to challenge consumers. But as mortgage rates continue to fall, is recovery on the horizon for the housing market? For much more and that question, our next guest predicting just that. Calling for a supply demand dynamic shift. Meredith Whitney, who is the Meredith Whitney LLC founder joins us now. Meredith, thanks so much for taking the time here this morning.

Let's begin there. What is really going to be the catalyst for the shift? Is it rates alone and does that do the job?

MEREDITH WHITNEY: You've got two major demographic shifts going on within the country. And I think your prior guest was great. Super cool and super smart. I would break this down regionally because I think that's very important. So first of all, the US economy is remapping itself regionally, and it has been since the great financial crisis.

So you see more growth in areas like Texas and Florida, Utah, Colorado, South Carolina. And you see population migration going along the lines of economic opportunity and economic growth. So there's more job creation in those states and less job creation in states like New York, New Jersey, Pennsylvania, Ohio, Illinois.

So you've got that trend going. And so you see more housing demand in states like Texas, all those states that I mentioned. And less housing demand in areas where there's less economic opportunity. And then the other major demographic trend you see is the aging of America. So what's called the silver tsunami is 10,000 people a day turning 65. And by 2030, the entire baby boomer population or generation will be over 65.

So that'll be 21% of the US population. So there'll be more people over 65 than under 18. And that will create a different environment. And will be lasting several years. So the AARP estimates that 51% of people over 50 downsized their home. And people over 50 are 74% of total US homeowners. So if you just take half of that, you've got about 30 million homes that should be coming on the market. And the peak in existing home sales was 2005 when you had around 7 million transactions.

So you've got a big sort of pig through the python that will start I think later part of '24 and go on for the next several years. So that, I think, is what's going to be reshaping housing in America. And I think that's what will put regional pressure in terms of more and less on home prices.

- Meredith, that silver tsunami that you're talking about, can you dive deeper into some of the-- you know, environment does that create? So you have all these homes potentially coming to market. Does that severely weigh on prices or do prices eventually start to take off because people are, let's say, the millennials are in there buying these homes potentially a little bit cheaper than they thought.

MEREDITH WHITNEY: Well, again, there's going to be more of a price weighting on areas where millennials are or new homebuyers are not going to be, right? That's where you're going to see the supply-demand differential. You've got a demand-supply imbalance now. There'll be a supply-demand imbalance, I think, over the course of the next several years. Five plus years, beginning as I said, in the latter part of 2024.

So I think you're going to see-- like I said, regional pressures. And for the millennial or-- you've got the lowest household formation rate you've had in 160 years. Millennials aren't getting married, they're not buying homes, they're choosing not to buy homes. You have more like a demographic of young men who have very little interest in even dating.

So that's Pew Research. So 50 plus percent of young men have no interest in dating. And so all these trends are weighing-- are ultimately going to weigh on the housing market. These are just undeniable trends that's going to impact things. And you know, again, it'll be regionally more powerful in some areas than other areas. And I think your prior guess, estimate of a 1% decline, you could see 20% declines in some areas and you could see housing in areas like Texas and Florida continue to go up.

- One of the main issues we see in the coverage that we provide here, Meredith, is that housing affordability is likely to be a key issue during the presidential election season next. So this silver tsunami you're talking about, does that crowd out lower income households? And then if so, where do they go? Do they just become a nation of renters?

MEREDITH WHITNEY: I think that there'll be a large portion of people that are renters. You know, 35% of people rent in the United States today. But I think that what will happen is prices have to come down. Because if you have more people selling than buying, that invariably puts pressure on homes and increases home affordability. And I think you're going to see that. In areas--

So look, you've got the greatest housing permits and construction going on in Texas less so Florida. You don't have major home construction in places like California and New York and New Jersey and Connecticut and Pennsylvania and Illinois. So you're going to see more affordable housing being created by new home builders, and you're going to see existing home prices come down.

- Where do you envision that banks are going to have to create within their own systems and their own models, even more leniency when they're evaluating potential home buyers considering that for home buyers now, especially millennial homebuyers, the costs are vastly different that they're trying to move through. Whether that be just coming off the cost of education, whether that be trying to get out of one city into another.

Where is there going to have to be some type of malleability in what's historically been a model that they could just lean on and say, yeah. We'll guarantee that we're going to back you for this house.

MEREDITH WHITNEY: Well, 70% of mortgages are outside of the banks now. So that since the great financial crisis. So you're really dealing with like a Rocket Mortgage or other independent non-bank mortgage companies for that. But they're not going to have the leeway to do that. It's really going to come or could come from government programs.

And you have a lot of government programs whereby you can put very little down for a down payment. It's just the servicing that becomes expensive. But if you lower the overall home price, the serviceability becomes more affordable. That's what, I think, is invariably going to happen. Because you're going to have more seniors, the silver tsunami selling, and there are fewer buyers. So the give is going to be lower home prices.

And just to tack on to your question from your prior guest, advice to millennials, that advice is to wait. Advice to boomers is sell. The sooner you sell, the higher price you capture. The longer you wait, the lower price you buy at. So I think it's a cat and mouse game.

- You mentioned the government programs. Does that place the housing market on the ballot when you think about the general election next year?

MEREDITH WHITNEY: It all depends, right? So the issue is, I think that the current administration has been somewhat misguided in terms of the student debt relief. Is not going to encourage people to vote for the current administration. That sort of gas has already been spent. And in terms of then catering to millennials or catering to-- certainly the bottom half. I divide it into-- it's not just the big group, the millennials, I call them the avocado toasters. Which is the lower half of the millennials-- 38 and under and then the Gen Z.

So you've got to capture. Those are the guys that you want to bring into the housing market. The older millennials, already in the housing market. So the big gap in home ownership is those for 38 and under. And it's unclear that creating programs to incent that group, that cohort to buying homes is going to guarantee votes. That doesn't mean they won't try. But it's unclear.

Now, the issue then more affordability if you want the seniors' vote to refuel the housing market, that might work. But it's unclear. Look, the seniors have so much equity in their homes. So $20 trillion in equity was created since the global financial crisis. So if home prices come down, people are still making enormous sums on the largest asset in their wallet.

- Meredith, always a pleasure to get some of your insights, your perspective. Really great having this conversation with you. Happy holidays.

MEREDITH WHITNEY: Thank you. Happy New Year.

- And Happy New Year to you as well. Thanks so much, Meredith.