Gen Z Homeownership: Are They Buying More or Less

As generations age, the refrain seems to be the same: young people aren’t buying houses anymore. And even though home prices are higher than they’ve ever been in many locales, the stats paint a vastly different picture: Gen Z is, in fact, buying homes.

Many reasons made it possible for twentysomethings to take on their first mortgage. Keep reading to see why Gen Z is buying homes – and why that could change soon. 

How Gen Z Compares to Other Generations

Even though it seems like younger generations are eschewing homeownership, the numbers tell a different story.

Real estate website Redfin says that in 2022, 30% of 25-year-olds owned a home, compared to just 28% of Millennials and 27% of Gen X. However, 32% of Baby Boomers had a home by age 25. 

One of the main reasons that Gen Z appears to be ahead of older generations is that they could get near-record low interest rates, which made homebuying more affordable than it was for previous age groups.

The interest rate you receive greatly impacts what you can afford. For example, the average interest rate in 2020 was 3.11%, while the average interest rate in 2009 was 5.04%.

Here’s how that can impact your mortgage payment. Let’s say you buy a $200,000 home with a 5% down payment. Your monthly mortgage payment, excluding property taxes and homeowners insurance, will be $1,019 if you have a 5% interest rate and a 30-year term. But if you can snag a 3% interest rate, that monthly payment drops down to $801. That’s a difference of $218 per month or more than $2,500 a year.

While that may not seem like a lot of money to older generations, that is a huge difference, especially if you’re just starting out in your career or just buying your first home and may have unexpected expenses in your budget. 

Remote Work

Another possible reason for the difference is due to the advent of remote work. While Millennials and Gen Xers may have had to buy homes near their employers, Gen Z has experienced more freedom in where they can look to call home. This means they can find homes in cities with a low cost of living.

Redfin’s data shows that Indianapolis, Cincinnati, Detroit, and Virginia Beach are hot spots for Gen Z homeowners. What do they have in common? They’re all cities that offer a reasonable cost of living.

While the national median home price in 2023 was $405,000, the average home price in the cities mentioned above is closer to $255,000 – a much more reasonable amount for someone in their 20s. 

Generosity from family

If you’re wondering how people in their 20s can afford to save for a down payment on top of their other financial obligations, Gen Z also appears to be benefiting from family help. Research shows that about 25% of homebuyers ages 23 to 31 used money from their family to help with the down payment. 

However, only 17% of those between the ages of 32 and 41 received down payment assistance from their loved ones. Having financial help, even if it is a loan, can help young people get a mortgage faster.

Why homeownership may be slowing down

Even though it seems like Gen Z is off to a roaring start when it comes to being homeowners, it may be a short-lived phenomenon. Here’s why:

High interest rates

We may be seeing the end of the Gen Z push into homeownership. Interest rates have risen sharply in 2023 and don’t seem to be backing down any time soon. High interest rates coupled with the consistently unaffordable home prices, aren’t making it easier for those in the Gen Z group who have yet to buy a home.

And unless a true recession occurs and inflation drops, it doesn’t seem like the Federal Reserve will drop interest rates soon.

Student loan pause ending

When many in the Gen Z cohort bought homes, the COVID-19 student loan pause was still ongoing. This means that those homeowners did not have to worry about paying their mortgage bill and their student loan bill at the same time. 

Plus, some borrowers may have assumed that they would have some or all of their loans forgiven under President Biden’s loan cancellation plan.

Now that payments have resumed and the loan cancellation promise didn’t go through, many borrowers may be unable to afford a mortgage on top of their loans.

End of remote work 

At the beginning of the COVID-19 pandemic, many companies declared remote work as the future. However,now some companies backpedaling and instituting a return-to-work policy. This means that if you want to buy a house, you may need to live within commuting distance to the office.

The potential end of truly remote work may spell a decline for home sales.

Should Gen Z Keep Buying Homes?

Some people buy homes because they’re sick of bad landlords and unpredictable rent hikes, while others buy homes because they think it’s the responsible and mature thing to do.

Aside from getting married or having kids, buying a house is one of the biggest financial commitments you can make. It can be hard to get out of a mortgage, especially if home prices fall in your city. 

Many young borrowers don’t realize how much it costs to have a mortgage. Your mortgage is not the only amount you’ll pay every month – there’s also the cost of homeowners insurance and property taxes also to factor in. Not to mention the money you will spend regularly on basic maintenance, like cleaning out your gutters, changing the filter on your HVAC unit and more. 

Don’t forget about major repairs, like replacing a furnace, air conditioner or water heater. Experts say you should budget between 1% and 2% of the home’s selling price every year for repairs. For example, if you paid $250,000, then you should save between $2,500 and $5,000. It’s not a guarantee that you’ll have to spend that much per year on home repairs, but it will keep you covered in case it’s time to replace your roof or finally fix that crack in the foundation. 

Taking the plunge into homeownership is a big decision and a long-term financial commitment. As Gen Z and others decide to become homeowners for different reasons, there’s no perfect time for everyone. It’s about aligning your choice and your goals and figuring out when it makes sense for you. So if you’re house hunting, may the odds be in your favor, and may your home become a canvas for memories – whether you buy or not.