Determined to be Homeowners, Gen Z Stares Down the High Costs

One of the smartest and savviest home-buying demographics is confident it will be buying homes despite current affordability challenges in the US and Canada.

According to a trends report by Mustel Group and Sotheby’s International Realty Canada, the real estate market is set to absorb an influx in demand as the next generation of homebuyers, Generation Z, is primed for first-time home ownership despite challenges with housing affordability.

The US is already experiencing this in many markets.

Survey results revealed that 75% of urban Generation Z adults are likely to buy and own a primary residence in their lifetime, with 49% stating that they are “very likely” to do so; in fact, 11% already own their home. 

Seventy percent report that they would want to purchase a single-family home in their peak earning years if budget were not a consideration. 13% and 11% say they would prefer to buy a condominium or attached home. 

Gen Y Members Are Savvy Home Shoppers

Lauren Matera is a realtor for Coldwell Banker Realty, based in Annapolis, Md., who serves the Maryland and Washington, D.C., markets.

She says that homeownership is a viable housing option for Gen Z because they are finding that there is so little inventory in single-family homes to rent. “The SFR market right now can be so hot that homes listing for $1,800 per month in rent are getting bids of $2,000 to $2,100,” she tells GlobeSt.com.

“But Gen Z is smart and savvy. They saved their money early on in life because everyone told them to. They look at the numbers and have decided they don’t want to ‘waste’ their money on renting apartments. They can find comparable or even more affordable monthly payments for bigger homes by taking on a mortgage.”

Buying a house isn’t for all of Gen Z, Matera said, but for those who have a handle on their school loans and those who have determined their career paths, it can make sense.

Matera said she has been selling to Gen Zers who are ages 22 to 25. 

“They are not like the Millennials, some of whom had wrecked their credit scores at a young age or faced too many obstacles such as the Great Recession and other financial challenges such as waiting for a housing crash. Gen Z wants to take advantage of their housing opportunities now, at this age.” 

For Many, Challenges Lie Ahead

But for all their enthusiasm and determination, the numbers are working against Gen Z. “This survey gets to a critical point,” Skylar Olsen, principal economist at Tomo tells GlobeSt.com. “It speaks to the fact that one generation to the next, we have very similar dreams and visions for our future. What changes are our choices. As prices far outpace income growth, those choices become more and more limited.”

At the start of the millennium, Olsen said, it would have taken six years to save up for just 10% of the typical home in the US using a 5% household savings rate. After a housing bubble, bust, and subsequent recovery, by January 2020 the years-to-save had reached 7.2 years. Add a pandemic with some serious heat on home values from record low mortgage rates and remote work opportunities and by September 2021, years-to-save popped to 8.4 years.

“But here’s where the survey’s results are important again,” Olsen said. “The ability to save is not what it was and those numbers assume the same savings rate through time. Halve the savings rate for current would-be buyers and the comparison might more fairly be only six years to save for buyers at the turn of the century and almost 17 years today.

“With rents for single-family homes expected to grow quickly as well, Gen Z will need some serious changes to be able to attain the vision they have for their lives, a very similar vision to generations who got a crack at it in easier times.”

And indeed, the survey also found that 50% have already given up on their dream of owning a single-family home, with 34% stating that they have given up due to the high cost.

Report: More Than One-Third ‘Very Worried’

The survey also found that 82% of those who have not yet purchased their first home are worried that they will not be able to do so in their community of choice because of rising housing prices, with 38% indicating that they are “very worried.” The top financial barrier to saving money for a down payment is paying for current living expenses, which was cited by 28%.

The desire to own a single-family home remains high amongst this cohort, with 70% reporting that they would want to purchase a single-family home in their peak earning years if budget were not a consideration. 13% and 11% say they would prefer to buy a condominium or attached home. Although 50% have already given up on their dream of owning a single-family home, with 34% stating that they have given up due to the high cost.