Gen Z Homebuying Trends

gen z homebuying trends

Is it the historically low-interest rates? A change in lifestyle aspirations? Ramifications from the pandemic? Or D., all of the above? Determining what has influenced homebuying trends of late doesn't seem to have a clear answer, but one thing is sure: "Gen Zers" are already making their way into the real estate market.

With the oldest turning 24 in 2021, the generation known as Gen Z consists of people born between 1997 and 2012. Unlike millennials, the generation is currently being reported to favor homeownership at a young age and steering away from continuous renting. 

Many Gen Zers understand affording a home is a challenge. However, reports show they anticipate and optimistically strive to overcome the hurdles.  

Below is a look into this trend and what Gen Z may expect from the endeavor they're embarking on.

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Understanding the Obstacles

Affording a home has many moving parts, and there are numerous reasons why it is difficult to achieve at a young age. Let's look at the fundamental obstacles Gen Z must overcome.

Credit Scores and Credit Reports

Unfortunately, we don't start with a good credit score. It must be earned. Having a high score, or at least not a low one, is essential in getting a reasonable mortgage rate. 

The mortgage rates are historically low, making homebuying more affordable. Yet, the longevity of this phase could be more predictable. Previous generations have made do with rates that seem astronomical by today's comparisons. Returning to such a staggering figure of 15%, while dismaying, is not impossible. I suggest jumping on the excellent rates. A high score is necessary to capitalize on the investment. 

A good score is necessary for a low mortgage rate and a lower private mortgage insurance (PMI) rate. PMI is an additional cost to purchasing a home when buyers cannot finance the traditional 20% down payment. Not everyone has to pay it, but it is common when borrowing — especially for an FHA loan.

How can Gen Zers improve their scores? Used by lenders to evaluate a person's ability to pay loans, a credit score is based on an individual's borrowing history. Making payments on a car loan, credit card, and other loans is the conventional route. Establishing an extended length of credit, acquiring revolving debt balances, and making timely payments are crucial. 

Regardless of generation, it's essential to take advantage of the numerous ways to check a credit score and credit report for free. Routinely checking these records is vital to maintaining a good score by possibly discovering errors or identity theft.

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Let us help you. Call or Text Kenna Real Estate at 303-955-4220 to get personalized assistance from our expert real estate agents. Find out what your home is worth in today's market.

Debt-to-Income Ratios

Another essential factor is the debt-to-income (DTI) ratio. The number is calculated by totaling monthly debt payments and dividing by gross monthly income. Buyers want this number to be as low as possible when applying for a home loan. A standard convention suggests the higher the DTI, the more likely an application will be rejected. 

If Gen Zers plan to get off the ground running, they will need a low DTI. There are a few ways to go about it:

  • Paying car loans before applying for a mortgage
  • Reducing monthly payments through refinancing or loan consolidation
  • Resolving any credit card debt

Another possibility Gen Zers may need to consider is to add a co-borrower onto the mortgage. While the co-borrower's credit score and DTI are factored in, it could also improve approval chances.

Increased Home Prices

Today's real estate market also poses severe problems for prospective homebuyers. Rising sale prices and a lack of inventory see many buyers paying over the listing price. Is Gen Z ready to take on a house for more than its value? These optimistic views may be challenged when the higher-than-normal prices throughout the United States are brought to light. 

Ready to find your dream home in Colorado?
Let us help you. Call or Text Kenna Real Estate at 303-955-4220 to get personalized assistance from our expert real estate agents. Find out what your home is worth in today's market.

In June 2021, it was reported that the median price of existing homes was $363,300. If Gen Zers want to afford a home in this price range, they must save approximately $600 a month over the next ten years for a 20% down payment alone.

This serious amount of necessary savings and other challenges show why homeownership hesitancy is prevalent among millennials. Housing costs are projected to continue to rise as inflation hits and the cost of living increases. All this and more make aspirations of early homeownership questionable. 

Changing Lifestyles and Expectations

The COVID-19 pandemic has played a part in driving this upsurge in homeowning ambitions. Some point to close quarters during quarantine as a driving force to be independent and change work settings and expectations. Starting a family is another reason listed by Gen Zers behind emphasizing owning a home.

Shaping our lifestyles around work is no longer the norm as more and more individuals seek a healthier work-life balance. Additionally, with the help of technology, becoming autonomous at an earlier age can be easier. Having extensive resources and answers to the questions surrounding the homebuying process literally in their hands is something no prior generation has experienced.

What’s Next for Gen Z?

Exploring the current trends is interesting, but it it's difficult to project what's in store for Gen Z. With the meager mortgage rates, now may be the time to go " all in," as investing in a home now could potentially save big on interest payments throughout the lifetime of the loan. 

Or, like millennials, they could live with families while saving for down payment, seek modest cost-of-living areas, or keep it small by purchasing a "starter home" at a lower cost. 

Ready to find your dream home in Colorado?
Let us help you. Call or Text Kenna Real Estate at 303-955-4220 to get personalized assistance from our expert real estate agents. Find out what your home is worth in today's market.

Opportunities are also available for Gen Zers through grants, programs, real estate lenders, and financial specialists determined to help them succeed. 

Looking ahead will also be interesting as Gen Z grows older — possibly continuing to stray from the norm — and as the real estate market changes. One thing is for sure: As Gen Zers venture into homebuying, they will need guidance and a firm understanding of the benefits and drawbacks of making such a momentous financial decision.

Author bio: Eric Krattenstein'sKrattenstein's extensive marketing experience began at a boutique marketing agency where he developed dozens of successful innovative marketing strategies for brands ranging from startups to Fortune 500s. Before joining Asset Based Lending in 2016, Krattenstein served as U.S. Chief Marketing Officer for a European enterprise software company, where he spearheaded the company's expansion into the United States and Canadian markets. In his current role as Chief Marketing Officer, Krattenstein leads Asset Based Lending's Sales and Marketing team that helps upward of 40 to 50 real estate investors close monthly hard money loans.

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