The housing market is stuck right now. Baby boomers aren’t selling their homes, and younger people can’t afford to buy the ones that are for sale.
Meredith Whitney, known as the “Oracle of Wall Street,” says home prices must drop by about 20% to fix this problem.
It might sound like a big drop, but she explains why it’s not such a bad thing and how it could help make things better.
- Baby boomers own most homes and aren’t selling, which makes it harder for younger people to buy houses.
- A 20% drop in home prices could make houses more affordable without causing a major market crash.
- Lower prices and lower interest rates are needed to help more people buy homes and get the housing market moving again.
Why Baby Boomers Are Not Selling Their Homes
Meredith Whitney, famous for predicting the 2008 financial crisis, sees a major issue in today’s housing market: baby boomers are holding onto their homes, limiting availability for younger buyers.
“The problem is the baby boomers own 60% of the housing stock,” Whitney said in a CNBC interview. “They’re not moving.”
Why not? Many boomers are “aging in place.”
Whitney explained, “They’re not selling because they’re aging in place, because they can’t afford to go anywhere else,”
With either low mortgage rates locked in or fully paid-off homes, moving often doesn’t make financial sense for them.
Whitney added, “The older people aren’t selling; they have no place to go. They can’t afford to move.”
High property taxes, rising homeowners insurance costs, and homeowners association fees also add to the challenge, particularly for retirees on fixed incomes.
This reluctance to sell creates a “real standoff between sellers and buyers,” with fewer homes on the market and higher prices making it difficult for younger people to buy.
Why Home Prices Need to Fall by 20%
Whitney believes that home prices need to drop by 10% to 20% to restore affordability for younger buyers.
“I think you’re going to start to see home prices go down,” she said.
However, this wouldn’t cause a housing crash, she explained.
Instead, it would bring prices back to where they were in 2020 or 2021, before the pandemic housing boom.
She emphasized that even with a 20% drop, most homeowners would still have a lot of equity.
“For homes to be affordable, that’s going to have to happen,” Whitney added.
She argued that the government needs to allow this adjustment.
“I wrote a letter to whoever won the presidential election, telling them they have to let home prices drop, and it wouldn’t be the end of the world.”
But why are prices so high in the first place?
Many people are unwilling to sell their homes unless they get a high offer, Whitney noted.
“In some cases, people list their homes at exorbitant prices and sell if they get an offer, or stay if it doesn’t meet their expectation.”
This strategy limits the availability of reasonably priced homes, particularly in the middle and lower tiers of the market.
Whitney also pointed out another surprising trend.
“Young, single men are living at home, playing video games,” she said in a previous Fortune interview.
“Unless you’re creating a household, there’s no reason to buy a house.”
This shift in lifestyle has lowered demand for homes and added to the challenges in the housing market.
How Interest Rates Affect the Housing Market
The Federal Reserve has started lowering interest rates, cutting its benchmark rate by 75 basis points since September, bringing it down to 4.5%.
However, Meredith Whitney says that lowering rates alone isn’t enough to fix the housing market.
“You have to have rates come down, but you also have to have home prices come down. One doesn’t work on its own,” she said in a recent podcast.
Will the “Silver Tsunami” Bring More Homes to the Market?
Another factor that could affect home prices is the “silver tsunami.”
This term refers to the expected wave of baby boomers selling their homes as they get older, downsize, or move into care facilities.
Meredith Whitney believes this shift will add more homes to the market and help bring prices down.
“The two together would mean more supply, less demand, and falling prices,” she explained.
But she doesn’t foresee this leading to a crash; instead, it would simply reverse the rapid price increases seen during the pandemic.
However, not everyone agrees with this prediction.
Some experts argue that the influx of homes from baby boomers won’t overwhelm the market, as younger generations will absorb the additional supply.
What Needs to Change for Homes to Be Affordable Again
Meredith Whitney points out a big problem in the housing market: older generations aren’t selling their homes, and younger people can’t afford to buy them.
She believes that home prices need to drop by 20% and interest rates need to come down to make buying a home more realistic for younger buyers.
If the market is allowed to adjust on its own, both buyers and sellers could see a more balanced and active housing market that works for everyone.
