How are Gen Zers buying homes already?
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How are Gen Zers buying homes already?
Some members of Generation Z — people born between 1997 and 2012 — are now old enough to buy homes. And despite recent, record-high home prices and rising mortgage rates, Gen Zers are ahead of older generations.
In 2022, 30% of 25-year-olds owned a home. At the same age 28% of millennials, and 27% of Gen Xers owned homes, according to real estate brokerage, Redfin.
The youngest generation of homeowners benefitted from favorable economic conditions when they entered the workforce, financial assistance from relatives, and flexibility to move to affordable areas, according to experts. But their small lead ahead of Gen X — the generation of many of their parents — might be closing due to recent higher mortgage rates and rising prices, dividing the generation.
Of course Gen Z might not catch up to baby boomers’ homeownership rates any time soon. At age 25 32% of baby boomers owned a home. But Gen Z did account for 9% of first time home purchase applications in 2022 — a number expected to grow as Zoomers age and earn higher incomes.
How did Gen Z get ahead of millennials and Gen X?
Like their homeownership rates, the economy looked different when the oldest members of each generation hit 25.
Many Gen Xers entered adulthood during the recession of the early ‘90s and older millennials entered the workforce during the Great Recession and housing crisis in the 2010s.
“Millennials were a bit unlucky because they got into the housing market when the housing crash happened and then interest rates went up,” Saiz said.
Members of Gen Z still face difficulties in home buying born out of the housing crisis, but they also benefited from entering the workforce at a time of record-low interest rates, said Max Besbris, an associate sociology professor at the University of Wisconsin-Madison.
“The economic moment at which people are entering adulthood, really does matter for longer term trajectories for their generation as a whole,” Besbris said.
People who graduated college during a recession experience an initial 9% loss in annual earnings. Those earnings losses compared to people who graduated in a stronger economy shrink over time but don’t disappear until 10 years after graduation, according to a study published by the National Bureau of Ecnomic Research.
However, recent rate hikes might prevent younger members of Gen Z from buying a home, Besbris said.
Mortgage rates were at historic lows of under 3% in 2020. Today, they sit at over 7%.
Who’s affording a home by 25?
Elijah Nevins bought a three-bedroom house in Kansas City, Missouri, for around $180,000 at the start of the summer.
“This is one of the few houses that wasn’t actively falling apart or had major structural issues and was in my price range,” Nevins said.
Although Nevin’s mid-century home, complete with a wood paneled family room, fell within his budget, it wasn’t easy to afford.
A year of savings from his job as a parts advisor at a car dealership enabled him to take on the monthly mortgage payment. But he needed help from his mom to cover the down payment.
Together, Nevins and his mom put less than 6% down on his home — less than the traditionally recommended 10%-20% down payment.
And he’s not the only Gen Z homeowner breaking the housing market tradition. The typical home purchased by someone under 25 in 2022 cost $235,000 with a downpayment of just over 4%, according to Redfin.
The median home price in the U.S. was over $420,000 in July, according to Redfin.
Nevin’s is also far from the only Gen Z homeowner that received parental assistance during his home buying process.
In 2022, 25% of homebuyers between the ages of 23 and 31 used a gift from family or friends to cover their down payment, according to the National Association of Realtors. Only 17% of buyers ages 32 to 41 used financial gifts to cover their down payments.
Where are Gen Zers buying?
Nevins grew up in Shawnee, Kansas, and knew early on he didn’t want to be away from family. The cost of living around his hometown made staying an easy option.
“The cost of living is so incredibly cheap here compared to other parts of the country, that it almost is cost prohibitive to move to some of those other areas.” said Kansas City realtor Jana Jeffery.
She’s worked in the Kansas City area for nine years. She noticed an influx of young home buyers in the area over the last two years. Around a quarter of her clients today are Gen Zers or young millennials, she said.
Millennials seem more settled in higher cost, urban areas like Seattle, San Jose and Austin, according to data from Redfin. Early data shows Gen Zers might be more flexible, partially due to the rise of remote work, Besbris said.
The highest concentrations of Gen Z homeowners are in lower cost places like Virginia Beach, Indianapolis and Cincinnati.
Kansas City contains the seventh highest percentage of homeowners under 25, according to Redfin.
Despite Kansas City’s popularity with young home buyers, Nevins is still likely the youngest homeowner on his block. The median U.S. home buyer is 40 years old, according to Zillow’s Consumer Housing Trend Report for 2023.
Although he’s 16 years ahead, he still wonders if he could have bought earlier.
At around $180,000, in 2023, his home was over $90,000 cheaper than the median housing price in Kansas City. But in 2010, when the oldest Gen Zers were 13, Nevin’s house was listed at just $75,000, according to Zillow.
It’s not just Kansas City seeing jumps in home values. In the three years since 2020, the average sales price of a new home in the U.S. jumped by roughly $148,000.
At 24-years-old, Nevins said he doesn’t feel ready to be a homeowner. But after watching the cost of housing rise over his lifetime, he wasn’t sure he could afford to wait.
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