The ‘Growing Crisis of the Young American Male’ Could Send Home Prices Falling for Years Or Even Decades, Says the ‘Oracle of Wall Street’

Economic

Summary:

Meredith Whitney, deemed the “Oracle of Wall Street” for successfully calling the financial crisis, says home prices are likely to fall substantially, and the reasons have to do with habits picked up by young guys.

“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 told CNBC this morning.

The outcome could have profound effects on the housing market, she said.

“I think you’re going to start to see housing prices begin a multi-year/decade decline, just due to supply/demand dynamics,” Whitney said. “So you’ve had a demand, supply imbalance: more demand, less supply. And I think that’s going to invert.” So what that means is supply will then outweigh demand, which is why she sees home prices falling for years.

Whitney’s take is based in part on demographic shifts. The bulk of housing is owned by people and households over the age of 40, she said. But household formations are the lowest they’ve been in more than a century, which translates into a demand problem, she said today.

Yet many experts have predicted that home prices will only continue to go up from here. Mortgage rates reached a two-decade high last year, and people were still buying homes—and because there simply aren’t enough homes, demand outweighs supply, keeping home prices high. Whitney, however, is calling it differently as shifts within the housing world, and apparently among young male adults, occur. It’s not clear what data she is referring to here or in the information above.

Whitney argued that lower-than-ever interest rates “ballooned inflation, and particularly housing inflation,” which has priced so many people out of the 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,” Whitney said. Then she goes on to say that homeowners hold much more wealth than non-homeowners.

Whitney has long discussed a “silver tsunami” set to strike the housing market as baby boomers age and their homes are freed up. “You’ll see a supply-demand dynamic shift,” the founder and CEO of Whitney Advisory Group previously said, echoing her claims today.

“Normally you would think as rates go up, home prices would go down, and that hasn’t happened over the last two years,” she said. “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.”

Home prices rose 6% in January; a lot of people think they’ll keep going up. In January, Goldman Sachs predicted home prices will rise 5% this year and 3.7% next year. In March, Capital Economics predicted home prices will rise 5% this year. This month, CoreLogic predicted they’ll increase by 3.1% this year (from February 2024 to February 2025).

Toward the end of last year, Whitney said 51% of people over the age of 50 are set to downsize to smaller homes, citing an AARP report at a conference, and it would bring more than 30 million housing units to the market. More supply, or better said, supply that outweighs demand, would trigger a drop in home prices.

However, this concept of a “silver tsunami” has been widely refuted. A recent analysis from Freddie Mac revealed that the 9 million homes set to come onto the market in the next decade as baby boomers age aren’t going to really disrupt the market. For one reason, younger generations will enter at the same time—meaning housing demand will continue to rise. “Some have warned of a ‘silver tsunami’ as aging boomers look to sell their homes, flooding the market with inventory,” the Freddie Mac report read. “But as this analysis demonstrates, the tsunami is more like a tide, bringing a gradual exit that will mostly be offset by new entrants.”

Additionally, Eric Finnigan, vice president of demographics for John Burns Research and Consulting, recently told Fortune that baby boomers aren’t going to crash the market because they’re powering it. His team found it takes about four deaths to equate to one home listed for sale (because a partner might hold onto it, or it may be passed down to children). The number of homes listed for sale due to deaths is rising, and it will continue to, but “it’s not a deluge,” Finnigan said. “It’s not a tidal wave of homes being listed for sale because of all these dying baby boomers.”

Source: CFO Daily

To stay updated on all economic events of today, please check out our Economic calendar

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Remarks of Officials

Atlanta Fed President Mary Daly said on April 2 as follows.

The economy and monetary policy are currently in good shape. Inflation is falling, though at a slow and bumpy pace. There is no urgency to cut rates as the labor market and economic growth are strong. It would be appropriate to maintain the current restrictive monetary policy.

Three rate cuts this year are a reasonable baseline projection, but there is a risk of cutting rates too soon because progress on inflation may stall. It is important to note that three rate cuts are just a forecast, not a commitment, and it is too early to take this as a pre-determined path. The timing and magnitude of rate cuts will depend on how fast inflation slows and whether economic activity deteriorates. If inflation continues to be stubborn, the number of cuts may be reduced.

Cleveland Fed President Mester delivered a speech on the same day. She acknowledged the risk of maintaining high interest rates for an extended period and thought that would cause unnecessary harm to the labor market. The bigger risk would be to begin reducing the funds rate too early, which could cause stagnation in the disinflation process.

The two officials both dampened expectations for a rate cut. Mester's remarks were more hawkish as she ruled out a rate cut at the May policy meeting.

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Alex

Forex

Indian Rupee (INR) loses momentum on Wednesday. The rise in crude oil prices to nearly a five-month high has exerted some selling pressure on the INR, as India is the world's second-biggest oil importer. The escalating geopolitical tensions in the Middle East and Russia-Ukraine might further boost crude oil prices and drag the INR lower. However, the robust Indian economic data and optimistic outlook for the Indian economy might limit the INR’s downside.

The final reading of Indian HSBC Services PMI for March will be due on Thursday. On Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das will unveil the first monetary policy of the financial year 2024–25. According to a majority of analysts, the Indian central bank is likely to keep its key repo rate unchanged at 6.50% at its April meeting and maintain its stance of withdrawal of accommodation. On the US docket, the ADP Employment Change and the ISM Services PMI will be published on Wednesday. On Friday, the Nonfarm Payrolls (NFP) will be released.

Daily digest market movers: Indian Rupee seems vulnerable amid higher crude oil prices and global factors

Oil prices edge higher to their highest level in five months, propelled by concerns that rising tensions in the Middle East could crimp supply.

India’s HSBC Manufacturing PMI rose to 59.1 in March from the flash estimate of 56.9, below the market consensus of 59.2.

RBI would allow exchanges to offer forex derivative contracts involving the INR only for contracted exposure or hedging, compared to the current allowance of up to $100 million without any explicit underlying exposure. The rule will come into effect on April 5.

The RBI's MPC decided to keep the benchmark interest rate unchanged at 6.5% for the sixth straight meeting at its last meeting in February, citing inflationary concerns, and decided to remain focused on the withdrawal of accommodation.

Cleveland Fed President Loretta Mester said on Tuesday that she expects rate cuts this year but ruled out the next policy meeting in May.

San Francisco Fed President Mary Daly stated she thinks three rate cuts in 2024 seem "reasonable," but she needs more convincing evidence to confirm it. According to the CME FedWatch Tool, investors are now pricing in about a 65% odds of a rate cut by June, down from about 70% after the Fed's March meeting.

The US February JOLTS Job Openings climbed to 8.756M in February from a downwardly revised 8.748M in January, better than the market estimation.

Technical analysis: USD/INR keeps the bullish vibe in the longer term

Indian Rupee trades on a weaker note on the day. The bullish outlook of USD/INR remains unchanged since the pair has risen above a nearly four-month-old descending trend channel since last week.

In the near term, USD/INR is above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index hovers around 64.15 in the bullish territory, indicating that further upside looks favorable for the pair.

Any follow-through buying above a high of November 10, 2023, at 83.49 may extend its upswing to an all-time high of 83.70. The additional upside filter to watch is the 84.00 psychological level. In case of sustained trading below the support level near a high of March 21 at 83.20, the pair could fall back to 83.00 (round mark, the 100-day EMA), followed by a low of March 14 at 82.80.

Source：FXStreet

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ING

Economic

The February Job Opening and Labour Turnover Statistics shows that there remains a large number of job vacancies out there, but the low quit rate implies they are not necessarily particularly attractive. Quit rates at current levels imply that labour market cost pressures will continue to cool, which should help to keep inflation trending towards 2%.

Job opening rose to 8.756mn from a downwardly revised 8.748mn in January (initially reported as 8.863mn). This is slightly better than the 8.73mn figure expected, but as the chart below shows, this is broadly consistent with the moderating trend seen in the data posted by the Indeed jobs website on vacancies.

Subtle Signs of A Cooling Jobs US Market Will Aid the Fed’s Inflation Fight_1

This means that the ratio of job vacancies to the number of people unemployed has dropped to 1.355 from above 2 in March 2022, thereby suggesting the labour market is moving into better balance although it clearly remains tighter than the pre-pandemic period. As can be seen in the chart below, the US jobs market also remains far hotter than both the UK and Germany where there are fewer job vacancies than there are unemployed people.

Subtle Signs of A Cooling Jobs US Market Will Aid the Fed’s Inflation Fight_2

Nonetheless, the attractiveness of those available US jobs doesn’t appear to be especially high, either because of the role on offer or the rate of pay that is on offer. The quits rate – the proportion of workers quitting their job to move to a new employer – remained at 2.2% nationally and at 2.4% for the private sector. This is a significant cooling from the 3% rate recorded in the third quarter of 2022 and is a good metric for how “hot” the jobs market is. Indeed, it has been the best lead indicator for overall employment cost developments in recent years with a high quit rate signaling there were lots of jobs on offer, providing attractive rates of pay that incentivised workers to quit and move to a new role.

Subtle Signs of A Cooling Jobs US Market Will Aid the Fed’s Inflation Fight_3

However, as the chart above shows, the quits rate has slowed meaningfully. With the quits rate normalising, this implies there is less pressure or incentive for employers to raise pay rates in order to retain staff – it is at levels consistent with overall employment costs slowing to around 3%YoY, having been close to 6% in 2022. Given the US is a service sector dominated economy and labour costs are the biggest cost input for service related businesses, this implies that inflation pressures emanating from the labour market will continue to ease in coming months and help contribute to inflation gradually returning to the Federal Reserve’s 2% target.

To stay updated on all economic events of today, please check out our Economic calendar

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Owen Li

Commodity

Energy

Portfolio investors have continued to realise profits on formerly bullish diesel positions and begun to turn bearish as supplies adjust to the disruption of trade through the Red Sea and a mixed industrial outlook.

Hedge funds and other money managers sold the equivalent of 26 million barrels in the six most important petroleum-related futures and options contracts over the seven days ending on March 26.

Sales came after fund managers purchased 140 million barrels the week before, one of the largest increases in the last decade, according to position reports filed with exchanges and regulators.

But nearly all the latest week’s sales were in middle distillates (-24 million barrels), both U.S. diesel (-8 million) and European gas oil (-17 million).

There were only minor adjustments elsewhere in NYMEX and ICE WTI (-5 million barrels), Brent (+1 million) and U.S. gasoline (+3 million).

As a result, the combined distillates position was reduced to 49 million barrels (43rd percentile for all weeks since 2013), down from a recent peak of 87 million (72nd percentile) on Feb. 13.

The reduction in distillate positions has coincided with a significant softening of gas oil and diesel prices compared with crude oil.

The premium for European gas oil over Brent crude had shrunk to roughly $168 per tonne on March 26, down from a recent peak of $274 on Feb. 9.

The premium for U.S. ultra-low sulphur diesel over U.S. crude had fallen to $28 per barrel from $48 over the same period.

Despite attacks on tankers in the Red Sea and Gulf of Aden that forced the re-routing of diesel trade there has been no discernible tightening of supplies.

U.S. diesel inventories were about 14 million barrels (-10% or -0.86 standard deviations) below the prior ten-year seasonal average on March 22.

But the deficit has not worsened significantly from 11 million barrels (-8% or -0.76 standard deviations) at the start of 2024.

The market has adjusted to the longer routes for diesel deliveries and the impact of Ukraine’s drone attacks on Russia’s refineries.

In the meantime, the outlook for a cyclical industrial recovery in the major economies to boost diesel consumption and prices has remained mixed.

Global freight flows appear to be strengthening after a long but shallow downturn between the middle of 2022 and the middle of 2023.

Manufacturing in the United States and China also shows signs of increasing, but Europe’s industrial businesses have struggled to emerge decisively from recession.

Persistent inflation in the services sector has forced central banks to postpone anticipated interest rate cuts until the middle of the year or later.

In consequence, the expected tightening of distillate inventories has been pushed back and caused many fund managers to be more cautious in the short term.

U.S. Natural Gas

Investors made few changes to gas positions for the third week running, after an earlier buying surge in late February and the start of March occasioned by the announcement of production and drilling cuts fizzled out.

Hedge funds and other money managers had reduced their net short position to 431 billion cubic feet (bcf) (20th percentile for all weeks since 2010) on March 26 from 1,675 bcf (3rd percentile) on Feb. 20.

In real terms, prices remain only a little above the multi-decade lows hit in mid-February. Announced drilling and output cuts should put a floor beneath them and the balance of risks is tilted to the upside in the medium term.

But working gas stocks were still 656 bcf (+40% or +1.44 standard deviations) above the prior ten-year seasonal average on March 22 and it will take time erode the bloated inventories.

Source: Devdiscourse

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Remarks of Officials

Cleveland Fed President Loretta J. Mester said on April 2 as follows.

The Fed has made substantial progress on inflation, but inflation is still above the 2% target. The monthly inflation readings in January and February came in firmer than the readings over the second half of last year and are a good reminder that the disinflation process will be "bumpy".

The inflation picture hasn't changed much so far this year, and I continue to believe that inflation will keep declining over time to 2%, but more data are needed to boost our confidence and give us a better sense of whether the disinflation process is stalling out. The Fed is not expected to gain enough confidence at the next FOMC meeting to decide on a rate cut.

If the economy develops in line with expectations, it would be appropriate for the Fed to start cutting rates later in the year. The actual path of policy will depend on how the economy develops.

Economic growth is expected to slow somewhat this year compared with last year, but it will remain above the trend growth of 2%; the labor market is expected to come into better balance this year, with the unemployment rate rising modestly from its current very low level; and further progress on disinflation is expected to be made but at a slower pace than last year.

The bigger risk would be to begin reducing the funds rate too early. And with labor markets and economic growth both being very solid, we do not need to take that risk. Our current monetary policy stance puts us in a good position to manage risks that could manifest themselves on either side. If the labor market deteriorates, the Fed can move rates down quickly. If inflation appears to be stalling, the Fed can hold its restrictive stance for longer.

Mester's Speech

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Cohen

Economic

Central Bank

The U.S. Federal Reserve held its benchmark overnight interest rate steady in the 5.25%-5.50% range at its March 19-20 policy meeting, and officials continued to anticipate approving three quarter-percentage-point rate cuts by the end of 2024.

Before policymakers begin to ease borrowing costs, they say they want to see more data confirming that inflation is returning to the U.S. central bank's 2% target.

Here's a recap of recent key data watched by the central bank:

Job Openings (Released April 2, next release May 1)

Fed Chair Jerome Powell keeps a close eye on the U.S. Labor Department's Job Openings and Labor Turnover Survey (JOLTS) for information on the imbalance between labor supply and demand, and particularly on the number of job openings available to each person who is without a job but looking for one. The ratio had been falling steadily towards its pre-pandemic level, but since October has remained in the 1.35-1.43 range, higher than the 1.2-to-1 level seen before the health crisis.

The number fell in the most recent release, for February, as the number of people seeking work rose, pushing up the unemployment rate.

Other aspects of the survey, like the quits rate, have edged back to pre-pandemic levels. Charting the Fed's Economic Data Flow_1

Inflation (PCE released March 29; next release CPI on April 10)

The personal consumption expenditures (PCE) price index, which the Fed uses to set its 2% inflation target, increased at a 2.5% annual rate in February, up from the 2.4% rate seen in January. Core inflation stripped of volatile food and energy prices rose 2.8%, a slight decline from the upwardly revised 2.9% in January. Neither number is likely to boost confidence among Fed policymakers that inflation will steadily return to their target.

The CPI had risen 3.2% on a year-on-year basis in February, up from 3.1% in the prior month, and higher than analysts expected. The core rate excluding food and energy costs, meanwhile, only edged down to 3.8% from 3.9%, another reminder that the Fed's inflation battle may last longer than anticipated. Rising gasoline and shelter costs contributed the bulk of the CPI increase. Whether the Fed's hoped-for consistent easing in housing costs is imminent remains uncertain. Charting the Fed's Economic Data Flow_2

Employment (Released March 8; next release April 5)

U.S. firms added a larger-than-expected 275,000 jobs in February, though employment gains in the previous two months were revised lower by 167,000. The unemployment rate rose to a two-year high of 3.9% as a rise in the size of the workforce was outweighed by a larger increase in the number of people reporting they were out of work.

Fed officials have become more comfortable with the idea that continued strong job growth could still allow inflation to fall, especially if the supply of labor continues to grow and wage growth eases.

On the wage front, growth eased on a month-to-month basis to just 0.1%, the smallest increase in two years and essentially neutralizing the unexpectedly strong jump in hourly pay in the prior month.

The annual increase, meanwhile, slowed to 4.3% from 4.4%. While marking further progress, that level is still well above the 3.0%-3.5% range that most policymakers view as consistent with the Fed's 2% inflation target.