As JPMorgan Chase & Co. (JPM) CEO Jamie Dimon highlighted his fears of a messier inflationary environment regarding interest rates in his annual shareholder letter, what kind of picture do higher-for-longer rates paint for the future of mortgage rates and the US housing market?

Meredith Whitney Advisory Group CEO Meredith Whitney — previously dubbed the "Oracle of Wall Street" for predicting 2008's Great Financial Crisis — sits down with Yahoo Finance to discuss the elevated mortgage rates and the biggest factor that could stimulate inventory levels in US real estate markets.

"This is something I have been working on a lot lately, which is an increasing financial strain amongst households over 60. So you've seen a big jump in overall debt loads carried by households over 60 and as a proportion of total debt, that's doubled over the last 20 years," Whitney explains. "So I think you're going to see due to financial strain, more seniors having to downsize, and that's going to put more supply in the market."

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

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

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- JPMorgan Chase CEO Jamie Dimon is concerned about a number of risks to what he sees as a resilient US economy. Dimon voicing some of those issues in a new shareholder letter out today. He said the bank is prepared for interest rates going anywhere from 2% up to 8% or more.

So what question could that raise for mortgage rates? Here with more, is Meredith Whitney, CEO of Meredith Whitney Advisory Group. And Meredith, thank you for being here this morning. I'm curious what you think a higher for longer rate environment could do to the housing market, if we do see the Federal Reserve not only keep rates higher for longer, but also potentially even raising interest rates further?

MEREDITH WHITNEY: Well, that's a base case scenario that I'm assuming that rates stay higher longer. So regardless of what the Fed does to the short end, I think long end rates stay higher for longer. So in terms of the housing market, it has-- for the little activity that has gone on within the housing market, it hasn't impacted the housing market that much.

So 38% of homes were bought with all cash last year, according to Redfin. And so you're seeing a lot of activity going on in the housing market, regardless of where rates are. Certainly, if rates come down, you'd see more housing activity.

I think longer rates drive-- longer higher rates drive housing prices down. But that's in a backdrop of housing prices coming down, anyway, just because of supply demand dynamics.

- So Meredith, when you take into account some of the dynamics that are at play right now the likelihood that we actually will see prices either lower or actually move higher if we don't see a significant improvement in supply, what are the odds of each? And I guess, how do you see that then, overall, the impact that is going to have on the real estate market on generational wealth here for decades to come?

MEREDITH WHITNEY: Wait, so the odds of what? The odds of rates staying higher or the odds of home prices going lower?

- Pricing.

MEREDITH WHITNEY: From a pricing perspective, here's how I look at it. So you have a disproportionate amount of housing. Over 90% of housing is owned by households over 40. And over 74% of housing is owned by households over 50.

Over 56% of households-- of housing is owned by households over 60. And so you're going to see downsizing, either because of empty nesting. And that's a natural cycle of downsizing. So over 51%-- people over 50 households, over 50 downsize according to AARP.

But you also see, and this is something I've been working on a lot lately, which is an increasing financial strain amongst households over 60. So you've seen a big jump in, overall, debt loads carried by households over 60. And as a proportion of total debt, that's doubled over the last 20 years.

So I think you're going to see, due to financial strain, more seniors having to downsize. And that's going to put more supply on the market. So what you've seen and what's kept home prices so high for the last three, four years, has been lack of more demand than supply.

And I think you're going to see that invert with more supply than demand over the next 15 years. And that's going to start to happen over the next several-- over the next couple of years.

- I'm curious then, Meredith, what the catalyst will be for that drive in supply. And I want to pull up a quote here from the Dallas Fed about the impact of mortgage rates versus prices. They said that "as of September 2023, the average rate for homeowners was only 3.9%, compared with 7% on new mortgages."

So basically, the idea that interest rates are not necessarily having a read through impact to homeowners because they're staying in mortgage. They're locked in on mortgage rates that are a little bit lower. So then, what would be the catalyst moving forward to change that dynamic?

Is it going to rely just on supply? Or is there another maybe policy change that could be enacted to change that dynamic?

MEREDITH WHITNEY: Well, that's a really good point because a lot of-- the demographic shifts have been-- you could see the demographic shifts coming from a long way away. And what changed a lot of that in the '90s-- so, you know, you saw a big boom in housing from the baby boomers.

But what really accelerated the housing boom was a change in policy by Clinton and Frank Raines during the early '90s. So it increased home ownership from what had been historically a 64% rate to almost 70%. And you saw a massive housing boom and a subsequent housing bust when the homeownership rate then retraced below natural levels to around 63%.

We're about up to 65%. So I don't know that there would be any type of regulatory policy change because the scars of the great financial crisis are still very raw for a lot of people. So I don't know that there's a policy change that Biden enacted or proposed a $10,000 credit to home sellers. That's not really that much when you think of a home value-- average home value is well over $400,000.

- Meredith, has there been any sort of policies floated by policymakers recently that you think would better address, or how would the administration better address this housing affordability crisis?

MEREDITH WHITNEY: Well, I mean the letting houses-- letting home values naturally to come down. So you could have over a 30% move in home prices, and that's just retracing to pre-COVID levels and without a lot of collateral damage.

That, certainly, would make homes a lot more affordable. And I just think you have to let nature take its course. And, again, the math is I saw you had Barbara Corcoran, the grand dame of real estate on. It's hard to argue with her.

But just look at the math in terms of potential home buyers, potential home sellers. And the math is disproportionately weighted towards potential home sellers.

- Yeah, we were going to play a clip because you guys disagree a little bit just in terms of where exactly the market is heading in the short term. Meredith, real quick before we let you go. And I know the last time you spoke to Yahoo Finance, we asked you about the risk of recession. Right now, you're rather confident that the US economy was going to be able to avoid a recession here in 2024. Is that still the case?

MEREDITH WHITNEY: Yeah, I break it down to this. So over 2/3 of what drives the overall economy, which is 2/3 of GDP, which is consumer spending, over 2/3 of that is driven by the high-end, so households that make over $70,000 a year.

And what you have with the lower end has been, really, a lack. So we're beyond a year where stimulus ran off in terms of extra payments to people on entitlement benefits. And so you've already seen that pass through the economy.

And that was really felt by the dollar stores last year. That's anniversaried. And so I think you see a steady state with households under $70,000 a year. And really no feeling of pain with households above $70,000 a year.

And in addition, we're in an election year, where the administration is incented to increase government spending. And they've certainly done that.

- Meredith Whitney, always great to get your insight here. Thanks so much for taking the time to join us this morning, CEO of Meredith Whitney Advisory Group, thanks.

MEREDITH WHITNEY: Thank you.