Many people dream of buying a home. Unfortunately, that goal can be challenging for some millennials and Gen Zers in the U.S. to attain. Even the oldest people in this age group in their early 40s can find it challenging to find a property to settle down.
WHY HOMEBUYING IS HARDER NOW
Homebuying is harder for various reasons, from increasing home prices to decreasing wage growth. Millennials and Gen Z must understand the circumstances within and outside the real estate market to know what homebuying means.
HOME PRICES
Houses have always been an expensive investment. Prices have increased by 34% since the beginning of the pandemic. The average sales price for a home was $485,500 in February 2024. They can go even higher depending on location and size, and with fewer units being made, the supply is well below demand.
Covering the home prices on your own can be challenging. More than one-third of homebuyers from the millennial and Gen Z pool seek financial help from parents to put together a down payment.
COMPETITIVE BUYERS
Buyers are always present in real estate, but only 47.9% of millennial households own homes. This homeownership rate is significantly lower than that of baby boomers at 69.1% and even Gen X at 78.8% while moving at a slower pace.
Due to this competitive landscape, most millennials are turning to renting instead. Some may save since they still desire to own a home. Meanwhile, others think they’ll rent for the rest of their lives.
MORTGAGE RATES
Mortgage rates are also an influential factor in how hard homebuying has become. Most people cannot pay for a house in full, so they will likely have to take out a home loan. Unfortunately, the interest charged throughout your payments can be too high.
The average 30-year mortgage rate went from 6.27% to 6.88% in a year. Rates vary depending on the mortgage provider and payment term. Millennial and Gen Z homebuyers must also choose between a fixed or adjustable interest rate.
INFLATION RATES
Committing to a mortgage is challenging because of the economy’s current state and unpredictable inflation rates. It can be hard for millennials and Gen Z to shoulder a loan with their monthly expenditure, especially if they support themselves alone.
Consumer prices have increased by 3.5% from March 2023 to 2024. Several food categories have gotten more expensive, which causes others to rise indirectly. Some homebuyers must choose between survival or attaining homeownership.
DEBT
Taking on a home loan means taking on new debt, which can be challenging if you haven’t sorted out past financial challenges. Mortgage providers may also reject applications due to that history and its impact on their credit score.
Many generations struggle with student loan debt. About 3.87 million millennial borrowers owe $20,000-$40,000, while 1.8 million Gen Z borrowers owe $10,000-$20,000. Paying off that debt can be difficult as interest and fees grow.
PRIORITIES
Some millennial and Gen Z homebuyers put off getting a property because they have different priorities. Millennials were born between 1981 and 1996, which makes the age group around 28 to 43 years old. Gen Z comprises those born from 1997 to 2012.
Some people in this age range want financial independence and stability before moving into a new home. Those in relationships may want to get married before buying a house.
JOB MARKET
The competitive job market is another hindrance to buying a home. The unemployment rate for people 16 years and over is an average of 3.8%, with teenagers and people 20 to 24 struggling the most in March 2024. Depending on the industry, it can be even harder to land work.
Even having a job isn’t a guarantee for millennials and Gen Z to buy a house. The inflation rate surpassed wage growth in April 2021. The gap will likely continue, raising questions about purchasing a home.
HOW YOUNGER HOMEBUYERS CAN ACT
Real estate has many tricky, ever-changing variables. However, it isn’t impossible to secure a home. Millennial and Gen Z homebuyers need to take extra actions to get closer to homeownership.
Here are some suggestions:
- Explore different financing options: Home loan programs from government organizations like the Federal Housing Administration and the United States Department of Agriculture offer more relaxed requirements if you meet their criteria. There are also specialty programs like Fannie Mae and Freddie Mac. A decent credit score can enable you to put in a low down payment and negotiate terms.
- Make a good offer for a property: While coming up with an enticing offer is easier said than done, it can secure you a home and one-up other buyers. Save up for a down payment. Once you find a house you really like, putting up a huge lump sum of cash can be compelling for many real estate sellers.
- Conduct a home inspection: A home inspection is crucial in securing your forever home. It offers valuable information about the property’s condition, safety and potential maintenance needs. It allows you to make informed decisions, negotiate effectively and ensure that a property meets your long-term needs and expectations.
OTHER CHANGES NEEDED IN REAL ESTATE
While homebuyers are expected to adjust to the real estate market, the industry should consider improving the products and processes. A 2021 survey found that 68% of Americans still desire homeownership. If you’re one of the hopeful youth who wants the same, you understand that the demand is present.
Real estate agents now have a mission to appeal to the individuals still looking to get their own place. For instance, flexible payment strategies for millennials and Gen Z can assist the younger generation with securing a home. With a supply-and-demand problem in the housing industry, it’s also ideal to create more units that can be sold to different households of this age range.
It’s not too late to make a shift. According to the National Association of Realtors, all ethnic groups increased their homeownership rates between 2012 and 2022. Asian-Americans raised their homeownership rates by 6.1%, while Hispanic and Black households increased by 5.4% and 1.6%, respectively.
The market still has a long way to go to deliver housing to everybody. Nevertheless, real estate agents and homebuyers can work together to ensure that everyone who wants a property gets what they deserve.
NAVIGATING THE LANDSCAPE OF HOMEBUYING
Buying a home is possible yet incredibly difficult. Millennials and Gen Z require plenty of patience to succeed in the real estate market. The industry also needs to make changes to make homebuying more attainable in the long run. It’s challenging, but younger people can still attain the American dream.