Move Over Millennials – Gen Z Is Buying Up Homes Quicker Than Their Older Peers

While some millennials are unable to afford their rent, or keep up with the cost of living, not even mentioning the thought of buying property or a house, a younger cohort of new buyers are now stepping into the property market; Generation Z.

Against all odds, things are starting to shape up for some younger homeowners and would-be buyers, especially for those born between 1997 and 2012. In a 2022 Redfin report, data showed that more Gen Zs owned their homes last year, compared to the generation before them – millennials – and even their parents.

Yes, the Redfin data showed that roughly 30% of 25-year-olds last year owned their home, considered to be the oldest age group of the Gen Z cohort. This is slightly higher compared to their millennial peers, with only 28% that owned their home at the same age, and 27% of Gen Xers, those born between 1965 and 1980.

It shouldn’t come as a surprise that the only generation that had a higher ownership rate were Baby Boomers, those born between 1946 and 1964, with 32% of whom owned their homes at the age of 25.

With the economy stumbling, the cost of living out of control, eye-watering interest rates, and home prices at an all-time high, many wonder how the youngest generation managed to get ahead of their peers against a backdrop of tremendous economic challenges.

Born at the Right Time

Those who have been lucky enough to call themselves homeowners were simply born at the right time, it’s that simple.

Research by the National Bureau of Economic Research suggests that college students who graduate during a recession typically experience a 9% loss in annual earnings, compared to those who graduate during a stronger economy. The research further claims that while those losses begin to decrease over time, it would take nearly a decade after graduation for them to catch up with their peers.

Let’s take this as an example. The majority of older Gen Zers were either born before or around the time of the 2008 financial crisis. At this time, some Gen Xers may have already kickstarted their professional careers, while older millennials were fresh out of college. What this signals is that older generations had a slower start in terms of their earnings, compared to some Gen Zers who’ve only graduated before or after the pandemic.

Historically Low Mortgage Rates

Their birth year isn’t the only thing that’s helped them win over the real estate market in recent years. Back in 2020, the Federal Reserve pushed interest rates to near zero as a reaction to the global pandemic. The knock-on effect helped to bring mortgage rates down below 3% at the time, the lowest in more than two decades.

Before this, mortgage rates had never seen such levels, but this won’t last too long. In March 2022, the central bank reluctantly started lifting interest rates again, in an attempt to hamper soaring inflation, which peaked at 9% in June 2022, the highest in more than 40 years.

Since starting the inflation-busting monetary policy last year, the central bank raised interest rates 11 consecutive times, their benchmark interest rate up to 5.25% – 5.50%, the highest since the Bush Administration.

What this has meant for would-be buyers, especially millennials who now had some cash to spare for a downpayment, is that mortgage rates are now steadily beginning to approach 8%.

As a consolation, current rates, which are closer to 7.19% are still far below the 18.63% the market experienced during the 1980s, however, many experts suggest that at the current pace, we could soon be heading in that direction.

Shacking Up with Mom and Dad

Generation Z stepped into a somewhat strange labor market during the pandemic. As many of them entered their professional careers during the pandemic, companies at the time were mandating that employees work remotely, or from home at least several days of the week.

While unemployment levels were through the roof at the height of the pandemic, those who were given the opportunity to work remotely, especially younger employees or those who recently graduated took the liberty to either move back in with their parents or secure a cheap rental in urban metros that were running dormant at the time.

Not only did this help them save a lot of money after college, not to mention the Trump era student loan freezes, which are now making a strong comeback, but for some Gen Z employees, working from home, or working remotely is the second most important employee benefit after health insurance and before employer-sponsored retirement benefits.

Will This Last?

It’s somewhat encouraging to see how younger generations have managed to get their foot in the door, however, concerns over how long this trend will last are steadily revealing cracks in the system, and how inequality is spread among generations. Let’s hope that some Gen Zers have saved up enough of their stimulus checks to help them keep up with rising costs, as they enjoy their newly bought homes.

Published First on ValueWalk. Read Here.