- Meredith Whitney, known as the “Oracle of Wall Street,” expects a pullback in the housing market.
- Homes have been in short supply for years, but that could suddenly reverse later this decade.
- Here’s Whitney’s outlook for US real estate — and four states where homeowners should be wary.
Meredith Whitney, a former Oppenheimer analyst known for her foresight in predicting Citigroup’s risks just before the global financial crisis, has her sights set on another under-the-radar threat to the US economy.
Fortunately, unlike many market observers, the so-called “Oracle of Wall Street” isn’t concerned about a severe recession. In fact, she recently told Insider that consumers appear to be financially healthy. Despite the fact that credit card debt is steadily increasing, spending remains strong, and the unemployment rate remains low.
Instead, Meredith Whitney Advisory Group’s CEO, Meredith Whitney, is concerned that the US housing market will experience a correction in the coming years.
Baby boomers may cause a drop in home values.
Whitney believes that property prices will continue to fall as demographic shifts reverse long-standing supply-demand dynamics. That would come as a surprise to owners, given that US home values have risen 42% since March 2020 and have not fallen in over a decade.
Since the financial crisis, the United States has experienced a severe housing shortage. For years, antsy developers underbuilt houses out of fear of another downturn, giving sellers significant leverage over buyers. As a result, home equity values have reached all-time highs at the expense of affordability.
Millions of would-be buyers have been put off by stubbornly high home prices, as have high student debt levels. In late 2022, the National Association of Realtors discovered that only 26% of buyers were closing on their first home, an all-time low. The average age of a first-time homebuyer has also reached a record high of 36 years old, according to the firm.
According to Census data, only 10% of US homeowners were under the age of 35 in 2021. According to Statista data, less than 40% of eligible people in that bracket owned homes as of Q3 2022, which isn’t even half the rate of those 75 and older and far below the 45-to-54 bracket.
Baby boomers and the silent generation have benefited disproportionately from an unprecedented rate of property price growth. Whitney pointed out that the average homeowner has never been older, and that young people priced out of the unusually tight market may struggle to catch up.
“If you haven’t owned a home in the last 10 years, you’ve missed out on the single greatest wealth creator in the US — $21 trillion in equity created,” Whitney went on to say.
However, the days of easy profits for homeowners are coming to an end.
Whitney believes that as the housing supply shortage turns into a glut, property values will fall. According to Whitney, the housing market will be flooded with tons of properties from both homebuilders still playing catch-up and older sellers looking to downsize and save. An abundance of available houses will enable countless young people to purchase property at reasonable prices — an opportunity they’ve long awaited.
“I’m always data-driven, so it’s just the math,” Whitney explained. “When you look at the percentage of homeowners aged 50 and up, it’s staggering.” And, historically, 50% of those over the age of 50 sell and downsize for financial reasons.”
Whitney went on to say, “Even if you discount that down to a very conservative number, it’s just — from a mathematics standpoint — it puts a lot of housing inventory on the market.”
Whitney, on the other hand, believes that an aging US population will not cause the housing market to collapse overnight. Property prices may not fall until the end of the decade, she said, but it’s not too soon for homeowners to check whether their home equity is particularly vulnerable.
“It’s just a matter of time,” Whitney said of falling home prices. “Again, it’s not something that happens in one fell swoop, but it’ll be interesting to see the repercussions of that.”
Homeowners in some states will be hit harder than others as home values fall, according to Whitney. Migration patterns in regions have been clear, but she expects the upcoming market correction to be even more granular.
“This is state-specific,” Whitney says of migration patterns. “As a result, I expected this to happen. With more than a decade — 12 years — of data, I can now look at it and know that it did and is happening.”
Whitney reserves her full insight for clients, but she has identified four states where property prices will eventually fall: Pennsylvania, Connecticut, New Jersey, and Illinois. Texas, on the other hand, was cited as an example of a warm-weather state with promising migration trends.