November 16, 2024 – Meredith Whitney and Financial Sense Newshour's Jim Puplava discuss the outlook for the US housing market, where home sales are declining but prices continue to rise. She attributes this trend to skewed activity at the high end of the market, where cash-rich buyers dominate, while lower-end sales are stagnant. Whitney highlights that inventory has dropped by 10%, suggesting that home prices could decline once more supply enters the market.
A key point in their discussion is the financial strain on seniors, who own 60% of single-family homes. Many seniors are "asset rich but cash poor," as rising property taxes, insurance, and homeowners association fees outpace their fixed incomes. Whitney notes that 11 million senior women live alone, and most cannot afford expensive assisted living. As a result, many are forced to age in place, facing high homeownership costs.
Whitney suggests that seniors may increasingly turn to reverse mortgages, home equity loans, or new home equity investment products to access the significant equity in their homes. She emphasizes that despite some risks, reverse mortgages have improved since the 2013 reforms. Whitney also advocates for creative solutions to improve affordability for seniors, such as relaxing capital gains taxes, which could incentivize them to sell and help unlock housing stock.
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Transcript
Jim Puplava: Well, we received some recent numbers on existing home sales. They're probably the worst they've been since 1995. Existing home sales were down about 3 1/2 percent, but prices keep going up. Let's find out what's going on. Joining me on the program is Meredith Whitney from Meredith Whitney Advisors. Meredith, you just put out a piece on housing, several pieces, but explain how we're still seeing housing prices rise, while sales are falling.
Meredith Whitney: Sure. So sales are falling most dramatically at the lower end. The activity that's going on at least for the past year and a half, two years, has been at the very high end. So that's why I think you see a misrepresented number or certainly a skewed number in terms of home prices continuing to go up. So at the lower end you see no activity. The high end, you see activity fueled a lot by all cash transactions. So people that have money can buy new houses and can transact at the very high level, but the average home isn't moving. Now, data is has come out more recently about the fact that inventory in terms of homes that are. So the data that you're referencing are sold homes, but the homes that are actually on market or in inventory listed have come down about 10%. And Rocket said, Rocket Mortgage said just as much on last night's call. So I think you're going to start to see when my contention for the last two years has been when you see more supply in the market, you'll see home prices start to come down meaningfully.
Jim Puplava: That'll improve affordability because as you pointed out, there's plenty of housing stock. I want to talk about one thing you mentioned that was really surprising. Seniors own about 60% of all single family homes. And as we know, seniors are living longer. And as you point out, 11 million women, senior women live alone. So as many individuals have seen their houses rise, they're in a situation where they're asset rich but cash poor. Let's talk about that.
Meredith Whitney: That's exactly right. So there are 11 million senior women and about 3 plus million 4 million senior men who live alone. That equates to about 15% of all housing stock, all available housing stock. It has gotten so expensive to own a home. So actually renting is cheaper for the reasons that property taxes have gone up dramatically, homeowners insurance have gone up dramatically, homeowners association fees have gone up dramatically. So the homeowners gotten really squeezed. Now homeowners living on a fixed income and that seniors have gotten particularly squeezed, particularly if they're living Alone, because they're shouldering all of that burden. And so you see, I think you're going to see a number of things happen. Number one, this is the biggest risk if they fall behind. Well, okay, the good thing is that, you know, 40% of these homeowners don't have any mortgage. So they fall behind on homeowners insurance or they don't actually have to have homeowners insurance because they don't have a mortgage. So if you have a conforming mortgage, you're required to have mortgage insurance and you're required to keep your home up to FHA standards. You're required to stay up to date on your homeowners association fees. Now that's a strain for a lot of people. So people can sell their homes, but the problem is that only 1 in 10 seniors can afford assisted living. So unless you're on Medicaid, you would go into when Medicaid would provide nursing home facilities. But if you don't, or if you're not on Medicaid, which most people, the vast majority of people are not, you are out of luck. Because 1 in 10, only 1 in 10 can afford assisted living. So you're forced to age in place. And it's increasingly expensive to age in place. So selling may not be an option. I think the option that will, that has started to emerge, that will grow is taking, tapping into the equity in their homes because they have no alternative. And some say, well, that's really dangerous. Taking on debt. Loan to value ratios are at record lows. So there's so much equity, 35, 36 trillion in equity that can be tapped, probably 11 or 12 trillion of that is with seniors. So they can take reverse mortgages, which is now a Ginnie Mae government guaranteed product. They can sell a portion of their home as equity for a lump sum payment. So they're not making payments on either reverse mortgage or the home equity investment. Or they can take a standard home equity loan in which they would make loan payments. But either way they're going to get cash out of their homes to pay for daily expenses. And we can talk about that more if you want to, but I'll turn it back to you.
Jim Puplava: Yeah, I want to stay on reverse mortgages because if you're watching the financial cable stations, you have reverse mortgage commercials all the time. Tom Selleck is one of the movie stars that is promoting that. What about this as a viable option for many of them?
Meredith Whitney: Well, so Tom Selleck, I mean there's no secret that two, over two thirds of reverse Mortgage customers are women. So Tom Selleck ads are working. But reverse mortgages got a black eye right around 2013 because the problem was they were advancing too much cash on the home. So people took out the cash and ran out of the cash too quickly. And then they were outside of the contract on their reverse mortgage. So there were a lot of foreclosures. So the FHA, the Ginnie Mae stepped in and lowered the LTV limits on what was able to advance. Now in the meantime, that a new product came out to capitalize. There's always a theory of displacement in financial services. When one area is down, another area emerges. And so this is what the home equity investment product emerged. And there are about a dozen private companies that will say, okay, I'll buy a piece of your home. But they, all the fees and discounts they put on the value of your home end up being more expensive than a reverse mortgage. So I think the reverse mortgage product has been cleaned up a bunch. It still has a bad name. And I think you can do a lot more to advance that product because it's probably the better product that's out there.
Jim Puplava: I want to talk about something. Mortgage rates are up 370 basis points. You're taking a look at payments that are up 78%. Insurance, HOA fees, all that's up. And now, Meredith, we're seeing the long bond has gone up. It's almost at 4.6. 10 year treasuries are at almost 4 and a half, which is considerable when you think what a couple months ago was at 3.6. So what does this mean for let's say first time home buyers or let's say millennials that would like to buy a home?
Meredith Whitney: Well, it's a lot more expensive and I think, you know, it's got to be a two step process. You have to have rates come down, but you also have to have home prices come down. One doesn't work on its own. So it's problematic to have the long end back up, as you said. And I think that, you know, you would think cutting rates, the long end behave better, but people are worried about increased government debt and the risk to bondholders. So bond, you know, bonds keep getting cheaper and yields keep going higher. So I think that, you know, the new administration can do a lot or can do something towards being fiscally responsible and really minding the long end. Because housing is such a critical. The reason why I spend so much time and focus on housing is because it's such a critical part of the U.S. economy. I think the home prices will work out on their own because just as we talked about just a second ago, home prices appear to have gone up every year because the activity is skewed to the high end. When you see more transactions happen, you'll see housing normalize. And I think I expect home prices to come down anywhere between 10 and 20%. And that that's good. The government has to sit back and let that happen because that would only take home prices down to 20, 21, 2020 levels, and there'd still be an enormous amount of home equity still in people's homes.
Jim Puplava: Explain the difference in the high end market. I mean, in California, high end market, you read every day in the Wall Street Journal, homes going for 30 million, 40 million. So the high end market has been robust. Explain that.
Meredith Whitney: Well, the high end market, anything over, you know, a million, A million to 10 million, 10 million up, has been, you know, over the last four years the most active market because you've had an inflationary environment. So people with assets have made more money, people with out assets have not made money. And so you've seen this massive divide between the have and have nots. So if you made a tremendous amount of money on your home, let's say you have a small or no mortgage, it's very easy for you to relocate. Now if you have, let's say you're in a $10 million house and you want to downsize, you sell your house for 10 telling 10 million bucks. Let's even say you have a mortgage, you're moving into a $5 million house, $7 million house. It's going to be an all cash transaction. And so you're going to get a better price on your home and you're not going to have what it has been an interest rate shock whereby people say, I don't want to move because I've got a, you know, 2 1/4 mortgage and I don't want a 5 1/4 mortgage.
Jim Puplava: I want to talk about something, as you mentioned, and this will continue. There's 11, I think almost 12,000 baby boomers turning age 65 almost daily. Most of them are the majority of homeowners. So it sounds like this trend that's been in place unless something else changes is going to continue.
Meredith Whitney: Jim, this is something wild that I looked at the other weekend, which is the population growth in what's considered prime working age, that's 25 to 54 since 2000 has grown only 7.7%, but the population over 65 has grown by 77%. So you see this massive aging of the US population now, surely more Gen Zs are coming into the workforce. And I would say Gen Z at the lower part of the millennial equal the baby boomers. But the problem is the baby boomers own 60% of the housing stock. They're not moving. And, and it makes it very difficult to have the regular rate of change in the housing cycle to occur. It's usually between like five million homes. Five, five and a half million homes in a healthy market transact, you know, buy and sell. And we've had closer to four under four. And that's because the older people aren't selling. They have no place to go, they can't afford. They have no place to go, they can't afford to move.
Jim Puplava: I want to bring up something that gets back to the point that you're making. We had a client, they bought a house here in San Diego for 250,000. They have a $300,000 mortgage on their home. The house is worth 1.6 million. So the long and short of it, they're going to pay $260,000 in taxes. And then if they want to buy a condo to let's say downsize, the condos are going for a million dollars and they're looking at six and a half percent mortgage versus the three percent mortgage they have. So what about capital gains taxes and as we talked earlier, where mortgage rates are today?
Meredith Whitney: Well, you raise an excellent point. The new administration can relax capital gains tax for seniors. I mean, that's, that's an alternative. And you'd see a lot more seniors selling. It's an, it's an excellent point. Right, because seniors need, seniors need relief. And what is, what is, you know, one thing that is scary to me because you see the highest rate of increase in debt of any age cohort happen at the senior level. And that's counterintuitive, Right. As you get older, you should have less debt, not more. And this has happened rapidly within the last five years. So you see seniors really strained. And so there's going to have to be really creative alternatives to getting seniors to relocate to lubricate the housing market. And you nailed it, of course, which is creative solutions like tax relief for certain segments. That is, would be a really constructive move.
Jim Puplava: You know, I'm surprised that some of these builders, I'm thinking of Del Webb, which builds a lot of retirement communities that builders haven't come up with, maybe a smaller home, a one or two bedroom home, 11, 1200 square feet, single story, so you don't have to worry about stairs. But it seems like somebody needs to innovate and come up with a solution and with a product that fits this aging boomer class.
Meredith Whitney: And you think there's so much demand. Some of the problem with that is where it's located, right? So most seniors want to stay close to their doctors. There is an issue of just available land round. But I'll tell you, in D.C. what's going up is reasonably priced townhouses that have elevators for people who want to downsize in D.C. Washington D.C. where I live, is an incredibly wealthy area. And where I, where I say one in 10 seniors can afford assisted living in D.C. in Washington D.C. it's like two and a half to 10, 25% versus 10% of seniors can afford assisted living. So what's happening with these homes? They're reasonably priced, they're going, they're going above ask because there's so much demand for exactly what you're, what you're describing.
Jim Puplava: You know, this brings me back to something. You wrote a book a number of years ago, I think it was called State of the States. And you were putting forth the proposition that the middle of the country, that kind of central corridor, would become the growth factor in the United States, almost like the next emerging market. And as we see high prices of homes and high taxes, California, New York. What about the idea? Do you still hold to that thesis and would that be a possible solution? Because I know some of the clients have looked at Texas, they don't like the weather. Or they've looked at other places like Arizona, even Scottsdale has become as pricey as California. So moving to other parts of the country, that middle section you're talking about.
Meredith Whitney: Yeah, it all depends. I mean, one classic example has been when people retire, they move to Florida. No income taxes. And that's important when you're living off of a fixed income. They'll move to Florida and downsize and become at a minimum, snowbird at a maximum full time Florida resident. Here's the problem. You have a new situation called a rise in halfbacks. And a halfback is someone who moves to Florida and says, oh my gosh, I can't afford the property insurance because it's too expensive to insure a home. And property taxes are a lot higher than I expected. And homeowners association fees are rising, you know, by 40, 50, 60% each year. I can't afford this. So they say, okay, I'll move. I don't want to move all the way back to Michigan. I don't want to move all the way back to New Jersey. I'll move to South Carolina or I'll move to Tennessee, or I'll move to Georgia. And that's called a halfback. So you're seeing a lot of people make the first move and then make the second move because of affordability. In terms of. When I wrote the book Fate of the States, the research that I really plowed so much time and energy and expense into was rooted around what I thought was risky in terms of the states that had been the big beneficiaries of housing boom that was called the sand states. So Arizona, Nevada, Florida and California. And the problems there was they spent so much money along with rising home prices that then they found themselves in debt. And the big issue for me was that when they would have to cut back, they'd cut back on the social services that are not constitutionally guaranteed. Now when I think of what I'm paying taxes for, I think of safe streets, good roads, good schools, you know, basic amenities, social, social services, none of those are guaranteed. The only thing that is guaranteed within states are the pensions for public employees and the bonds. And for me, I thought, clearly they do the reasonable thing, which is cut back on either of them because the incurring costs of those are unsustainable. They wouldn't cut back on the social services that aren't guaranteed, but that taxpayers count on. And if they didn't, then taxpayers would vote with their feet. And what I worried about so much was the people that could afford to leave the states and go to states that had better amenities, and all the things they were looking for would do so, leaving less tax revenue to pay for the people most in need. And that has absolutely happened. So if you look at what's happened in New York, what's happened in Chicago, Illinois, what's happened in parts of California, versus spoils of riches in places like Texas and Florida. You see this massive state arbitrage where the states are getting stronger, that have managed their finances properly, so businesses and corporations. Texas has now has more Fortune 500 companies than any other state in the country. And that's since I wrote that book. That's what I expected. But, you know, you, you can. All the research I do is so data focused. And I'm, I, I don't, I don't release anything until I'm absolutely certain. Still, when it happens, I'm still like, wow. Because as an analyst, I'm absolutely certain. As a human being, I'm sort of taken aback by how fast Things happen, the numbers are there, but it's still alarming in terms of what's happened in the US and the demographic shifts that have occurred in the US and really it's been just 12 years since I published that book. It's been about 14, 15 years since I originally published the research to our clients.
Jim Puplava: So let me end with this. Let's suppose the President Elect Trump calls you and names you Housing Secretary and says fix this. What would you do?
Meredith Whitney: I would try to get the banks back in the mortgage space. So the banks that paid over $70 billion in fines for the mortgage crisis have post traumatic stress disorder and most of them do not want to be in the mortgage market. Now. They're the, they're the vehicles that can originate mortgages in large size. And when I say mortgage, I'm also putting the home equity product, the reverse product, all of the mortgage adjacent products together. So I think you've got to get that, you've got to get mainstream involved and get the big banks involved. To me, those are safe hands. And then I would pull in the smartest people, you, Lori Goodman's, you know, a mortgage Svengali, and try to come up with, with the best solutions. I think this capital gains relax easement for seniors within a certain asset threshold would be really meaningful because seniors who have your kind of money, Ken Langone kind of money, like they don't, they don't need this. But it's the, it's the middle market senior that really could use this. And, and then to your other point, have builders, which it's surprising to me, have more builders focus on seniors. And some are, but they're focusing on the very high end. They're focusing on the assisted living centers which run upwards of 20,000 a month. You know, no, no regular senior can, can afford that. But in terms of apartment living with senior amenities, that makes, that makes absolute sense. You're getting people to actually move out of their homes is really difficult the older you get. So there's got to be a type of media structure campaign to make it cool for seniors to move out of their homes, if that makes, if that makes sense. Right. Because, you know, the older you get, the less you like change, you can't afford it. But the alternatives are very scary. So I think this has to be a really well thought out, concerted effort because, you know, when we talk, when I talk about the risk of rates backing up and making affordable less, you know, I think the CBO is underestimating how many seniors are going to go on Medicaid because they're so financially stretched. Those are not in projections. Right. At least 21% of the seniors that rent, and you have half that level on Medicaid. I think it could converge to 15%. That's those are not on the CBO estimates. That means the deficit will be a lot worse. I mean, the senior issue is a big, big issue that needs to be addressed.
Jim Puplava: All right. Well, listen, Meredith, it was good to touch base with you again. Tell our listeners if they'd like to follow your work. I'm a subscriber to your newsletter. Great stuff that you put out. How could they find out more if they could?
Meredith Whitney: Thank you so much. Meredithwhitneyllc.com and you can subscribe. And it's at retail prices. There's a retail rate on there. And I try to write to empower everybody.
Jim Puplava: Well, listen, great stuff. Good to speak with you again and hope to do so again in the future.
Meredith Whitney: Wonderful. Thank you so much.
Jim Puplava: That concludes our weekend edition of the Financial Sense NewsHour. To speak with our financial planning and wealth management team, give us a call at 888-486-3939, or you can visit us on our website, financialsensewealth.com. If you aren't already a subscriber to our weekday podcast and would like to listen to more of our content, where we regularly interview book authors, industry experts and market strategists, go to Financial Sense and hit the Subscribe button. On behalf of the Financial Sense NewsHour and the Financial Sense Wealth Management team, we hope you have a pleasant weekend.
