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Generation Z is quickly superseding millennials as the big coming-of-age consumer group. However, as they reach young adulthood, this crop of customers (classified as those born between 1997 and 2012) is beginning to confront a daunting fact: Their dream of homeownership may be tough to turn into reality anytime soon.
First came the inventory shortages and skyrocketing prices of the pandemic-fueled years of 2020-21. Some of that housing market insanity began to die down in 2022, but then rampant inflation reared its ugly head. The average price of a home was nearly $543,000 at the close of 2022, compared to $307,400 (the equivalent of $392,847 today) in 2013, according to the U.S. Census Bureau and HUD. Financing was less expensive, too: The interest rate on a 30-year fixed-rate mortgage back then averaged 3.98 percent, compared to the current 6.6 percent.
Small wonder that buying a home can feel downright impossible for a lot of Gen Z members.
Key Gen Z home buying statistics
- Gen Z made up 9 percent of all first-time home purchase applications in 2022, according to CoreLogic.
- Close to 60 percent of Gen Z respondents to a March 2022 Bankrate survey associated owning a home with achieving the American Dream.
- 34 percent of Gen Z members believe that buying a home will always be out of their reach for financial reasons, according to Freddie Mac.
- The typical first-time homebuyer was 36 years old in 2022, according to the National Association of Realtors – the highest age on record.
- A 2019 HotPads study projected that the average Gen Z member would spend $226,000 on rent throughout their lifetime – a figure that undoubtedly looks higher now, given that asking rents are roughly 25 percent higher than they were before the pandemic.
Gen Z changing the housing market
- Student loan debt: For those who’ve recently graduated college, the good memories of the last four years are dragged down by what lies ahead: Paying back loads of money. Seventy-four percent of Gen Z respondents to a March 2022 Bankrate survey reported delaying financial decisions, including buying a home, due to student loan debt.
- Saving for a down payment: Data from Redfin shows that the typical Gen Z worker has only 2 percent of their income remaining after covering housing and other essentials. With only a sliver of cash left over, it’s hard to save up for a down payment.
- Inflation: The “i” word has affected everyone, but inflation may be even more challenging for Gen Z. As this generation earns entry-level salaries, they’re grappling with hefty expenses. One study from DailyPay estimates that only 28 percent of Gen Z can actually pay all their bills on time.
The broader potential storm clouds for a recession may create another set of headaches for this generation, as well. With these headwinds, it’s easy to see why Gen Z might not be rushing to get a mortgage, despite many having a desire to become a homeowner. (Despite all the financial hurdles, 84 percent of Gen Z respondents plan to buy a house or condo in the next few years, according to a survey from RE/MAX.)
Moving in with family
As Gen Z feels the sting of high inflation and surging rent prices, many of them are making a smart move: Not paying rent at all. While moving back in with the parents might not be the most appealing option for some, it can save a huge chunk of cash — especially given that the overall cost of goods and services for new renting Gen Z-ers is nearly 3 percentage points higher than for the general population.
Though the immediate reasons may be economic, the return to the childhood bedroom may be more than a pandemic-related trend. Data from the Pew Research Center shows that multigenerational living (two or more adult generations) has been increasing steadily over the past 50 years in the U.S. Just 9 percent of households fell into the category in 1971, but today, 25 percent of adults between ages 25 and 34 live in a multigenerational home. The “2022 NAR Home Buyers and Sellers Generational Trends” study found that 11 percent of homebuyers purchase a multigenerational home.
How Gen Z is using technology to buy homes
When Gen Z members are ready to buy, they are highly likely to put their tech-savvy skills to use. Sixty-seven percent of Gen Z homebuyers would consider using an app or an online service to make their purchase, according to a June 2021 Homie survey. As it is, 86 percent of buyers in their twenties use a mobile phone or tablet to search, according to the “2022 NAR Home Buyers and Sellers Generational Trends” report. That doesn’t mean that Gen Z won’t also employ traditional avenues like working with a real estate agent, but it does mean they’ll be looking for convenience — think virtual home tours, all-digital mortgage applications and e-closings.
Popular cities that young people are moving to
Gen Z has a lot to contend with as first-time homebuyers. Their best bet might be in one of these top cities for first-time homebuyers in 2022, ranked by Bankrate:
- Pittsburgh, Pennsylvania
- Minneapolis, Minnesota
- Cincinnati, Ohio
- Kansas City
- Buffalo, New York
Tips for Gen Z homebuyers
1. Know your bargaining power
While the headlines of the last two years might make you assume that sellers have the advantages, the tide is starting to turn. Many real estate professionals foresee a more balanced market between those listing and those looking; In fact, a panel of real estate experts at Zillow are predicting a big shift toward a buyer’s market in 2023 and 2024. So, don’t be intimidated and don’t make the mistake of offering too much money; more sellers are dropping their prices as the market cools off. Plus, Redfin predicts that median home prices will fall by 4 percent in 2023. If that happens, it will be the first time since 2012.
2. Consider your debt load
If you have heavy debt from student loans, you might be hesitant to take on more with a mortgage. Tackling the educational obligations first might in fact be the better course.
“You may be better off spending a few years knocking out some of that student debt,” says Greg McBride, chief financial analyst at Bankrate. “With federal loans at zero percent, now is a great time to make a lot of headway against the balance. At the same time, you can invest in your career mobility and work to build up your savings. That way, when you do decide to buy a home, you can afford one that you plan to be in for a while.”
3. Get clear on your goals
A home is a major investment, so think carefully about where you want to live and what type of property you want before you buy — and be prepared to stay there for some time. If you didn’t make enough of a down payment to start and haven’t built much equity through appreciation, it’ll be harder to “break even” on your sale, and even to pay the closing costs.
“If you’re not planning to be there for at least five years, there is no guarantee that you will come out ahead,” says McBride. “It’s important to remember that buying a home is a long-term proposition.”
4. Widen your home search
With a tight budget, flexibility is key. Instead of looking for a single-family home with a backyard in a sought-after neighborhood, for example, expand your house hunt to other options (condo, townhouse) or more remote areas.
“Maybe explore other local townships that may have more affordable pricing, or consider condos and townhomes to start,” says Judy Chin, a Realtor with RE/MAX Villa in New Jersey.
5. Look for help
The downside to being a young homebuyer: You might not be earning that much money yet or have much of a credit history. However, that can actually help you qualify for down payment assistance.
“State and local programs can provide great financial help for first-time homebuyers to help with down payments, closing costs or other costs associated with a home purchase,” says Pete Boomer, executive vice president at PNC Bank.
Check out Bankrate’s list of first-time buyer programs by state to learn your options.
Generation Z is the generation that followed the Millennials. Born between 1997 and 2012, the members of Gen Z are digital natives accustomed to always having access to the internet and a smartphone. There are around 68 million members of Gen Z in the U.S.
Generation Z refers to those who were born between 1997 and 2012. The oldest members of Gen Z are 25 years old and in the workforce, while the youngest members are just approaching adolescence.
Generation Alpha refers to those born after the Gen Z 2012 cutoff. For Generation Alpha, buying a home is a long way off. With the current typical age of a first-time homebuyer at 36, the oldest members of Generation Alpha can expect to start shopping for a home in 2039.