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Twentysomething home buyers are getting started on their journey toward homeownership earlier in life than millennials. The homeownership rate for adult Gen Zers—those between 19 and 26 years old—is higher than it was for millennials and Gen Xers when each of those groups was 24, according to an analysis conducted by Redfin.
While Gen Zers between the ages of 18 and 24 only comprise about 3% of home buyers now, they’re still getting attention in the housing market because of their eagerness to purchase a home early despite market challenges.
“These young buyers are tiptoeing into the housing market,” says Jessica Lautz, deputy chief economist for the National Association of REALTORS®. Gen Zers view homeownership as a financially smart move: About 87% of them say homeownership is important to building wealth, according to a survey from real estate investment platform Arrived. Also, the median net worth of a homeowner is typically about 40 times that of a renter ($396,200 versus $10,400), according to NAR research.
“If a buyer enters the market early, this long-term wealth gain could mean more stability moving forward,” Lautz says. “These young buyers are unlikely to hold onto their first home for their lifetime and will be able to make housing trades with stronger down payments with the equity they are earning.”
Nearly 65% of Gen Zers say they’re eager to jump into homeownership, preferably within the next five years. However, they are concerned about affording the upfront costs, such as a down payment and closing costs, according to a survey of 750 respondents between the ages of 18 to 27 conducted by RE/MAX.
So, How Are They Buying?
Facing record-high home prices, how can twentysomethings, just starting out in their careers, afford homeownership? Further, more than half of Gen Z home buyers are single, which means they’re taking on the costs of homeownership alone.
“While purchasing on a single income can be difficult when considering housing affordability, a single buyer may also need less square footage for a growing family,” Lautz says. Also, “there is some indication in research that Gen Z has learned from the financial missteps of millennials and are thoughtfully considering their higher education, which could mitigate some of the tremendous student loan debt held by other generations.”
Case in point: 61% of millennials blame student loan debt for delaying their entrance into homeownership, NAR data shows.
What’s more, young adults are increasingly opting to move back in with their parents, bypassing the high costs of renting, so they can save sooner for a down payment. They’re also getting financial help from family to afford high homeownership costs.
Here are some ways Gen Zers are becoming homeowners:
- Loan alternatives: They’re turning to FHA loans, which require smaller down payments and lower credit scores to qualify than conventional loans. They’re also seeking first-time home buyer grants and down payment assistance programs.
- Financial gifts: More than one-third of Gen Zers who plan to buy a home expect to receive a cash gift from family members to help fund their down payment, according to a separate study from Redfin. About 16% intend to use inheritance money for their down payment.
- Compromises: More than half of Gen Zers surveyed by RE/MAX this year say they’re willing to make compromises on their home purchase to more easily afford homeownership, such as on the home’s price, location and size. Fifty-seven percent of Gen Zers say they’re willing to buy a fixer-upper that needs maintenance or repairs in order to get a lower purchase price, according to a report from Clever Real Estate. Also, about a quarter of Gen Zers say they’re even willing to live in a less safe area if the property comes at a lower price, according to Redfin’s consumer surveys.
- Affordable markets: Gen Zers are seeking out more affordable markets to call home. For example, Gen Zers who earn $63,000 or less are most likely to purchase homes in cities like Pittsburgh, St. Louis, Cleveland and Detroit, where properties priced below $165,000 are more common, according to an analysis by SmartAsset, a personal financial resource.
- Co-ownership: They’re turning to creative ways to enter into homeownership, such as co-buying with friends or moving in with family members. Seventy percent of Gen Zers say they’d be willing to co-buy a home with a friend, according to a survey conducted this year by JW Surety Bonds.
Gen Z Homebuying Hot Spots
Twentysomethings who are able to achieve homeownership tend to buy in markets known for their affordability, such as the Midwest. The areas with the highest rates of Gen Z home buyers this year, according to SmartAsset, are:
- Indianapolis-Carmel-Anderson, Ind.
Median property value of homes purchased by Gen Zers: $225,000 - St. Louis
Median property value of homes purchased: $185,000 - Cincinnati
Median property value of homes purchased: $205,000 - Jacksonville, Fla.
Median property value of homes purchased: $275,000 - Virginia Beach-Norfolk-Newport News, Va.-N.C.
Median property value of homes purchased: $265,000 - Kansas City, Mo.-Kan.
Median property value of homes purchased: $215,000 - Minneapolis-St. Paul-Bloomington, Minn.-Wis.
Median property value of homes purchased: $285,000 - Pittsburgh
Median property value of homes purchased: $165,000
