An analyst once dubbed the “Oracle of Wall Street” has warned that forgoing home ownership is hurting the “avocado toast generation.”
Meredith Whitney, known for successfully predicting the 2008 financial crisis, said younger millennials and Generation Z – which she calls the “avocado toast generation” – missed out on $21 trillion in equity that older generations were through have built up home ownership.
“We’re seeing record low home ownership rates among those under 38,” she told .
“Homeownership has been a forced savings vehicle in the U.S., but especially so over the last 12 or 15 years because interest rates have been effectively zero.” We have seen $21 trillion in equity built in homes over the last decade which obviously represents incredible wealth creation.
“The people who didn’t participate were the people who didn’t own their homes – and that’s a disproportionate number under the age of 38,” she said.
Meredith Whitney, who has been dubbed the “Oracle of Wall Street,” has warned that foregoing home ownership is hurting the “avocado toast generation.”
Whitney noted that more younger people are also now living at home with their parents than in the past – although that trend has slowed somewhat since the Covid-19 pandemic.
“The incredible thing is that 70 percent of residential real estate in the United States is owned by people over 50,” she said.
Figures from the National Association of Realtors show that the average age of a first-time home buyer is now at a record high of 36.
Likewise, census data shows that only 10 percent of homeowners are under 35 years old.
Many commenters have noted that younger generations are more inclined to indulge in treats like avocado toast brunch rather than saving for at home – hence Whitney’s nickname.
Aspiring homeowners are currently faced with high mortgage rates that are deterring them from moving.
Many Americans signed 30-year contracts when interest rates were between 2 and 3 percent – effectively keeping them in their current homes.
According to the latest data from government-backed lender Freddie Mac, mortgage rates have fallen slightly – to 7.50 percent from 7.76 percent last week – but still remain elevated.
Specifically, that means someone who bought a $400,000 mortgage in October 2021 – when interest rates were at 3.09 percent – would pay $1,621 per month on their mortgage. This analysis assumes they made a 5 percent down payment.
But at today’s rates, that same owner would be forced to pay $2,657 – an increase of more than $1,000 per month.
But despite the stagnating demand, prices remained artificially high due to the limited housing stock.
“Younger people have been priced out of the market,” said Whitney, who is now CEO of investment research firm Meredith Whitney Advisory Group.
The average interest rate on a 30-year mortgage fell to 7.50 percent this week from 7.76 percent last week – the highest amount since last November
However, she speculated that a rise in downsizing among baby boomers could ultimately help ease the housing crisis.
“People who haven’t sold their home in the last decade will ultimately either need to move or want to reduce their overhead costs and want a smaller home.” “That’s typically 51 percent of those over 50, which equates to about 30 million units “, she said.
“Now it’s not all happening at once, but it will slowly start to change the dynamic.” “If we have a demand and supply challenge today, where there is more demand and less supply, that will translate into more supply – and hopefully more demand – turn around.”
The most important thing that needs to change for younger people to gain a foothold in the housing market, Whitney says, is prices.
“The question is how do you enter the real estate market for the first time without making a large down payment and being able to service a mortgage,” she said.
Whitney previously said she expects home prices in some states to soon fall for the first time in over a decade.
She predicts that Pennsylvania, Connecticut, New Jersey and Illinois are at greatest risk of falling prices due to migration trends.
However, prices in Texas are unlikely to fall, she said, after a large influx of California residents migrating there in search of a cheaper cost of living.
She said, “It’s country specific.” And so I expected that to happen. With more than 10 years of data – 12 years – I can now look at it and know that it actually happened and is happening.”