Will Gen Z be able to afford houses? Some uplifting signs

The turbulent economy of the last few years has left more than a few people wondering, “Will Gen Z be able to afford houses?” The short answer (and good news) is probably yes — despite some potential trepidations surrounding homeownership, first-time homebuyers who were born between 1997 and 2012 may have cause for optimism. Let’s take a closer look at Gen Z’s attitude toward homeownership, the challenges this generation may be facing and some steps they could take to mitigate them.

The rise of Gen Z homeownership

The path to Gen Z homeownership may have its own share of challenges, but that’s not stopping Gen Z, nicknamed “Zoomers,” from buying homes. In fact, some Gen Z real estate trends are pointing in an optimistic direction. According to a recent study from a major real estate brokerage about 30% of 25-year-olds owned their own homes in 2022, 2-3% ahead of both millennials and Gen X at the same age. While Zoomers, Millennials and Gen Xers are all lagging behind Baby Boomers in the homeownership race, there are certain attitudes and crafty moves that have set Gen Z apart from previous generations.

Gen Z seems to have a bit of savvy when it comes to the housing market. For example, many Gen Z homebuyers managed to take advantage of lower interest rates in 2020 and 2021. Since then, interest rates have increased to 7-8% depending on the loan. Interestingly enough, that rate hike isn’t scaring Zoomers either. While many homebuyers have expressed concern over this rise, a recent study from a major home lending agency showed that only about 2% of Gen Z homebuyers see interest rates as a roadblock on the road to homeownership.

Another way Gen Z is showing their real estate savvy is by buying in areas where homeownership is more attainable or affordable. The rise of remote work and the prevalence of proptech, which help buyers house hunt from a distance, have made it easier to widen their searches geographically.

Challenges to Gen Z home ownership

Though Gen Z homebuyers appear to be approaching buying property with agility and smarts, there are still several challenges they might want to be aware of as they embark on their homeownership journeys.

• Home prices: Many places are experiencing rising real estate prices, which could make it harder for homebuyers of any generation to afford homes in desirable locations.
• Inflation: While only a small percentage of Gen Z real estate buyers see inflation as an obstacle (according to findings by a recent study), it’s still likely to affect their financing options.
• Competition: As Gen Z enters homebuying age, they may experience higher competition from more financially established generations such as Millennials or Gen X.
• Student loan debt: Rising education costs mean more people are entering the job and housing market with student loan debt. This may make it harder for younger generations to save for a down payment.
• Credit score requirements: Historically, younger people have less credit (and often, shorter credit histories) than their older counterparts, which could impact their chances of mortgage approval.

Tips for Gen Z homebuyers

Many of the challenges facing Gen Z are challenges faced by all homebuyers. That said, there are some tips first-time buyers and Zoomers may benefit from.

• Up your financial literacy: While most people could benefit from a little extra financial know-how, first-time homebuyers and young people earning their first paychecks may want to hunker down and figure out their money situations. This could mean making a budget, building credit or tackling debt — all of which are helpful in the long run even if you're not buying a home.
• Try to start saving: It’s almost never too early to start saving. Having a robust savings account and emergency fund could help when it’s time to come up with a down payment, or if something goes wrong with your new home.
• Keep an open mind: An open-minded approach to house-hunting may be one way for Gen Z homebuyers to maintain some edge. This could mean buying in areas that are less expensive or developed, or buying a home that may not be “The one,” but works as “The one for right now.” Differentiating needs vs. wants may help in this area as well.
• Do your research: Keeping up with the housing market is one way for Gen Z to avoid some of the potential pitfalls. Understanding mortgage options, interest rates and the power of negotiation may prove valuable when it comes to Gen Z home ownership.

Note that these tips may not apply to all homebuyers, as every person’s situation tends to be different. If you’re feeling uncertain about any of these areas, it may help to contact a real estate or mortgage professional who can answer questions regarding your unique situation.

In summary

Gen Z may just be starting their homebuying journey, but that hasn’t necessarily put them at a disadvantage. Despite possible challenges, several of which affect homebuyers from all generations, Gen Z has shown they’ve got some real estate savvy. While this doesn’t provide a concrete answer to the question “Will Gen Z be able to afford houses?”, it does provide room for optimism. Applying that savvy and doing proper research may help this latest generation of homebuyers make solid, informed choices that help set them up for long-term success.