Famed analyst and investor Meredith Whitney has shone a spotlight on the plight of America’s avocado toast generation — aka younger millennials and Gen Z — who have missed out on $21 trillion in equity by not owning a home.
“We are seeing record low homeownership levels for those under 38,” the CEO of investment research firm Meredith Whitney Advisory Group, told DailyMail.com.
“Homeownership has been a forced savings vehicle in the U.S., but particularly in the last 12 or 15 years, because interest rates have effectively been at zero. We have seen $21 trillion of equity built up in homes over the last decade, which is obviously an incredible wealth creator.”
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But younger millennials and Gen Z Americans largely missed out on that wealth-generation opportunity, according to Whitney, because they weren’t quite at the age or financial standing to buy a house when interest rates were low.
However, change is lurking on the horizon, according to Whitney — who earned the nickname “Oracle of Wall Street” after successfully forecasting the 2007-2008 financial crisis.
‘Priced out of the market’
Unfortunately, it has only grown harder for younger generations to get on the housing ladder in recent years, due to post-pandemic inflation, elevated interest rates and sky-high home prices due to a nationwide inventory shortage.
The Census Bureau’s latest Housing Vacancies and Homeownership Survey reported the U.S. homeownership rate at 66% in the third quarter of 2023, amid persistently tight housing supply. Unsurprisingly, the rate was highest among the baby boomer generation, at 79.2%, and lowest among those under the age of 35, at just 38.3%.
There is plenty of evidence to explain why younger Americans have been “priced out of the market,” to quote Whitney — and it’s not just down to buying avocado toast and overpriced coffee, as some older generations may believe.
“They have jobs so they have money, but what they don’t have is wealth because they don’t own homes.” Whitney said during a recent CNBC interview, citing a survey that found that the vast majority (86%) of young Americans said they are not homeowners.
The first pain point is house prices. In June, the typical entry-level home sold for a record $243,000, according to real estate brokerage Redfin, which is up 2.1% from a year earlier and up more than 45% from before the pandemic.
This means a first-time homebuyer would need to earn an annual salary of around $64,500 — which is over $10,000 higher than the average wage of Americans aged 25-34.
It doesn’t help that the latest median price for a U.S. home was at $413,874 in October, a 3.5% increase compared to last year.
The second pain point is mortgage rates. In October, the average 30-year fixed mortgage rate hit 8% for the first time in nearly two decades. While rates have dropped below 7.5% in recent weeks, it is still painfully expensive to borrow money for a home.
Finally, limited housing inventory has kept housing prices artificially high. This shortage is partly due to a decline in new construction — as well as pandemic-driven delays — which means housing supply has failed to keep pace with U.S. population growth and demand.
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A ‘silver tsunami’
Change is imminent in the housing market, according to Whitney — some of it good, and some not so good.
House prices are already falling in cities across the U.S., and Whitney predicts further “state-specific” declines — including Pennsylvania, Connecticut, New Jersey and Illinois — due to job market and migration trends. This is presenting opportunities for prospective homebuyers who are not tied down by geography.
The “Oracle of Wall Street” also anticipates a “silver tsunami” in the coming years, where baby boomers will sell their homes and downsize — potentially helping to ease supply shortfalls.
“People who have not sold their house in the past decade will ultimately either need to move or want to reduce their overhead expenses and want a smaller home,” she told DailyMail.com. “That's typically 51% of people over 50, which is roughly 30 million units.
In a recent interview with CNBC, Whitney said this is going to be a “multi-year phenomenon.”
While the trend of baby boomers downsizing may work out well for Americans who’ve already built some equity in the housing market, Whitney told CNBC this will become “affordability issue” for younger Americans and first-time buyers, who likely can’t afford the older, bigger family homes baby boomers will be selling.
If that’s the case and there’s not enough demand, Whitney warned that boomers may simply choose to sell their homes at reduced prices that are closer to “pre-pandemic levels”, which could result in home values dropping and could put strain on any investments you have in the real estate sector.
But Whitney remains optimistic, telling CNBC “equity cushions are so big” for the older homeowners that “home values could go down … and everyone will be fine.” And as long as the avocado toast generation keeps their jobs “they should be fine.”
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Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.
