The reason why housing prices in the US will plummet

The housing crisis is one of the most relevant topics in the American economy in recent decades. Discussions over home prices, loan interests, availably and market conditions have dominated the news, but a new interesting theory has emerged, and it comes from a financial eminence. Meredith Whitney, regarded as the “Oracle of Wall Street” got her name for successfully predicting the financial crisis, is speaking again. She is positing that home prices are likely to go down, and not because of rising interests, but because of the habits picked up by young men.

“You have men staying single longer…and then you have what I call a growing crisis of the young American male…they’re twice as likely to live at home than women. So one out of five young men live at home with their parents, and these aren’t young men going to college and coming home for holiday breaks, these are young, grown men choosing to live at home,” Whitney reported to CNBC.

Whitney’s theory takes into account demographic changes the American society has gone through. Most of the real estate owned by families and not investors is owned by people over 40 years old.

“I think you’re going to start to see housing prices begin a multi-year/decade decline, just due to supply/demand dynamics,” Whitney continued in her statement. “So you’ve had a demand, supply imbalance: more demand, less supply. And I think that’s going to invert.”

The fact that new households are at their lowest point of formation and have been for a long time, eliminates the need for individuals or couples to purchase their own home. This means is supply will eventually outweigh demand, which is why she predicts home prices falling for years to come.

Many experts disagree with the Oracle, saying that housing prices are on the rise and will continue to be for a long time. There are not enough properties to meet demand, and even with mortgage rates at an all time high in two decades, Americans were still purchasing homes.

Whitney maintains her position. Hew view is that as the housing market changes and the behavior of younger generations, especially men, change, the trend of supply and demand will soon invert causing an excess of supply. The data she is working off of is unclear but she seems sure that “lower-than-ever interest rates ballooned inflation, and particularly housing inflation,” pricing many unattached young adults out of the housing market “If you’re single, the chances that you’re going to be able to afford a home on your own is less likely than if you’re a dual-income family,”. She also posits in agreement of the fact that homeowners hold much more wealth than non-homeowners.

Housing tsunami or just a tide?

This is not the first time she has made claims of what she has called a “silver tsunami”. Trend that we will see as the aging homeowners pass away and their real estate floods the market, creating a surplus.

“Normally you would think as rates go up, home prices would go down, and that hasn’t happened over the last two years,” she has repeatedly stated. “I think home prices will normalize because as more inventory, more supply comes on the market, you’ll see a true clearing price that is lower than it is today. So I would say 20% lower than it is today.”

She seems alone in her conviction, as other prominent analysts have seen the “silver tsunami” more as a mild tide, as older people exit the market, younger demographics enter, bridging the gap.

The gradual tide idea is further adopted by experts like, Eric Finnigan, vice president of demographics for John Burns Research and Consulting who explains that just because they are an ageing population, boomers are not out of the market or leaving it any time soon. Investigations done by his team have discovered that it takes about four deaths to equate to one home put on the market. Spouses may not sell or children may inherit and decide to keep the property as an investment or as their primary residence. Although it is true that the number of homes listed because of deaths is rising, it is definitely not a deluge.