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US housing underwent 'coastal Sun Belt revolution': Meredith Whitney

Mortgage rates are once again rising, causing grief for many would-be homeowners. Meredith Whitney — dubbed the "Oracle of Wall Street" for predicting 2008's Great Financial Crisis — previously sat down with Yahoo Finance to explain what she called the "Silver Tsunami": how baby boomers aging closer to retirement age will seek to downsize their current living situation, ultimately freeing up a large volume of housing inventory.

Meredith Whitney Advisory Group CEO Meredith Whitney joins Yahoo Finance again to give further insight into how the housing market is in a transitional phase and which regions will see the brunt of that transition.

Whitney gives historical context and outlines the economics behind why people are moving, and to where:
"Over the last 60 years, it's been a coastal Sun Belt revolution and I think what I believe, or I saw, over ten years ago was that people are going to start moving based on state dynamics in terms of better cost of living. No income tax dates. And you've seen that. So Texas, Tennessee, the Carolinas, Nevada, Utah — those have all been the strong states and the weaker states have seen out-migration. That's California, New York, Pennsylvania, New Jersey, Illinois. And so what you see, out-migration jobs have already gone so companies have relocated. Texas is the state with the most Fortune 500 companies. That wasn't the case ten years ago."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

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Editor's note: This article was written by Nicholas Jacobino

Video transcript

JULIE HYMAN: The dream of owning a home is becoming less attainable for many Americans. Mortgage rates rising again to start the year. Our next guest, though, says there will be a surplus-- surplus of homes for sale soon that could drive down prices for younger homebuyers.

For more on this, we're talking to Meredith Whitney Advisory Group CEO, Meredith Whitney. Meredith, it's great to see you, first of all. Thank you so much for being here.

- Good to see you, Julie.

JULIE HYMAN: So this is not the conventional wisdom right now, I think, safe to say. So what are you seeing out there that indicates a surplus of homes could be coming to the market?

MEREDITH WHITNEY: Well, I think it's going to be-- it'll be a building wave of a surplus of homes. Today you have a demand supply, a dynamic, whereby there's more demand and less supply on the market. And I think that is going to change just due to US demographics into a supply-- a supply-demand dynamic.

So 74% of all US housing stock, single family-owned stock, is owned by people over 50. And the AARP estimates that 51% of people work downsize, sell their homes, largely due to affordability issues. But the kids have left the home. They want to reduce expenses. And they moved to a more livable, maybe one-story cheaper home.

And you see support with that, being last year was the highest rate of all cash purchases sales since 2015. So you're seeing-- you're seeing hints at this all over the place. The demographic shift is one that's just accelerating. So in the past decade, every day, 10,000 Americans turn 65. Starting this year going out to the next decade, it's 11,500.

JOSH LIPTON: And, Meredith, so you're sort of looking for the housing market to kind of unfreeze here. How is it going to shake out across the country, though, Meredith? Do you see kind of-- will there be big differences regionally?

MEREDITH WHITNEY: I do think there are going to be big differences regionally. So it's not going to be a blanket. And just to preface this, not to make people nervous, there's so much equity within homes. So it's the opposite of 2007, 2008, whereby there was very little equity in homes. And so people had-- there was forced selling. I think this is going to be a gradual wave of selling just due to lifestyle changes and as this demographic issue.

Where there's going to be a challenge, I believe, is every 60 years the US economy makes a major change. And with that comes a geographic redistribution. So you look at the Industrial Revolution, people living north and northern New York State. And then the manufacturing revolution, people moving to the Midwest, down to the Carolinas. Then you have-- I'm skipping a couple revolutions in terms of the oil revolution and others.

But certainly, over the last 60 years, it's been a coastal sunbelt revolution. And I think what I believe we saw over 10 years ago was that people were going to start moving based on state dynamics in terms of better cost-- better cost of living, no income tax states. And you've seen that. So Texas, Tennessee, the Carolinas, Nevada, Utah, those have all been the strong states. And the weaker states have seen outmigration. that's California, New York, Pennsylvania, New Jersey, Illinois.

And so what you see, outmigration jobs have already gone. So companies have relocated. Texas is the state with the most Fortune 500 companies. That wasn't the case 10 years ago. So people then will migrate where there's opportunity. And home prices, the average home price in Texas is still much cheaper than the average home price in New York and even Florida. So I think you're going to see-- like, you're going to see stable if not appreciating home prices in areas where there's economic opportunity and, you know, home price pressures where there's lack of economic opportunity. And you've already seen that with California and New York. They've had home price declines last year.

JULIE HYMAN: Meredith, how does climate change factor into all of this? I mean, especially if people are heading south, some of those places are going to be less pleasant. On the flip side, as someone who lives in New Jersey, flooding has gotten-- something like flooding has gotten worse. But you also have those issues in Florida, for example. So does that-- especially as you get further out from today into the future, how much is that going to be a factor?

MEREDITH WHITNEY: I think it's definitely a factor. So one expression that's used commonly are halfbacks, where people move down to Florida. And even then the cost of living goes up because I think there are two carriers-- two insurance carriers in Florida. So homeowners insurance is incredibly expensive. People may not factor that in. Or because of climate change, the environment's untenable.

So then they move up-- they don't move all the way home, they'll move halfway back to Tennessee or the Carolinas. And so that's definitely influenced things.

JOSH LIPTON: We covered a lot of ground in a short amount of time there, Meredith. Thank you so much for joining us. Appreciate it.

MEREDITH WHITNEY: Thank you. Good to see you.