Young buyers are embracing homeownership
A new report found that in 2022, 30% of Gen Z Americans owned a home at age 25, making them a prime source of buyer (and seller) leads.
- Young buyers found themselves in a favorable market with ultra-low interest rates and strong job market in 2021 and 2022, boosting their homeownership rate.
- For those who didn’t buy, the opportunity may have passed, at least for this year.
The youngest generation of adults is getting a head start on homeownership.
That's according to a new report from Redfin that found 30% of 25-year-olds owned their home in 2022. That's a higher rate than millennials (28%) and Gen Xers (27%) when they were 25, but slightly lower than baby boomers (32%) for that age.
It turns out that Generation Z was able to take advantage of some favorable market and economic conditions that helped many achieve homeownership at a young age, including record low mortgage rates in 2020 and 2021, a strong job market, government stimulus payments and a pause on student loans. Plus, many young adults lived with family during the lockdowns, which allowed them to save money for a down payment, said Redfin Chief Economist Daryl Fairweather.
Parents and other family members not only offered up a place to live, some also contributed to down payments. Perhaps sensing that ultra-low interest rates were creating an opportunity that was too good to pass up, family members may have advised the younger generation that now was the time to buy, said Jessica Lautz, NAR's deputy chief economist.
Both Gen Z and millennial buyers may struggle in 2023
For those who waited to act, that opportunity may have passed. Elevated interest rates, high home prices and a slowing economy have created an unfavorable environment for young homebuyers — at least for the coming year, especially if the economy falls into a recession.
Plus, entry level homes are facing the stiffest competition this spring, according to a recent report from Zillow. It noted that home prices were falling for upper-tier homes but rising among homes in the first-time homebuyer range.
"Buyers shopping for the least-expensive homes this spring aren't noticing much difference from the pandemic-era market heat," said Skylar Olsen, Zillow's chief economist.
"Competition is fierce, but there aren't many homes for sale, so buyers should be patient but prepared to move quickly and anticipate a bidding war once they find a home they love," Olsen added.
Although Gen Zers may struggle to buy a home in the current market, millennials appear to be even worse off.
"Millennials have been financially unlucky. Their parents had a more straightforward financial journey," said Fairweather. "The oldest millennials entered the workforce during the 2001 recession. Then came the 2008 financial crisis, with many millennials in their first post-college job. It limited their earnings, overall wealth and ability to buy a home for many years afterward. Millennials started to gain homebuying momentum just before the pandemic, but they were once again dealt a bad hand with pandemic-related job losses in April 2020," she added.
Still, millennials are trying to make up ground, the report noted. Along with the oldest Gen Zers and youngest Gen Xers, millennials accounted for the lion's share of home purchasers in 2022. People aged 25 to 34 bought 33% of primary homes that sold in the U.S. last year, the highest share of any age group. They're followed by 35-44 year olds, who bought 27% of them.
Where is the younger generation buying?
According to Redfin's report, people under the age of 25 were mostly likely to buy a home in the Midwest and less expensive areas in the East, including Virginia Beach, Cincinnati, Detroit, St. Louis and Indianapolis.
Affordability appeared to be a key driver. In those cities, the typical home bought by a Gen Zer sold for under $255,000 in 2022.
Older Gen Zers and young millennials gravitated toward tech hubs, according to the report. Seattle topped the list, with 41.4% of homes sold to the 25-34 age group. Other popular metros included Philadelphia, Pittsburgh, San Jose and Austin.