Despite some millennials experiencing better financial position compared to other Americans, they surprisingly have the lowest rate of homeownership among all generations in recent history. This trend of declining homeownership is expected to continue with the subsequent generation, commonly known as Gen Z or zoomers, which encompasses individuals born from the late 1990s to the early 2010s.
As of 2022, the average age of first-time homebuyers in the United States was 36 years old. Considering this, it becomes evident that most Gen Zers are still quite far from reaching the stage in their lives where homeownership becomes a realistic consideration. With many zoomers currently in their late teens or early twenties, their entry into the housing market is still several years away.
However, even as Gen Z starts reaching their thirties over the next few years, it’s unlikely that there will be a sudden surge in home-buying activity within this generation.
Here are 5 factors that contribute to this projection.
1. Increasing college costs
Based on data from 2021, it was found that the average Gen Z individual in college, often referred to as zoomers, could anticipate paying a staggering total of $90,875 to pursue a degree at a typical public university. Comparatively, when examining the same four-year degree from a historical perspective, the average baby boomer spent a considerably lower amount of around $40,000 (adjusted for today’s dollars).
The substantial disparity in college expenses between these generations has significant implications, particularly in relation to homeownership. The financial burden of nearly $100,000 that Gen Z students face while obtaining their education is a substantial hurdle to overcome, impacting their ability to save and accumulate wealth in the long run.
As a result, it comes as no surprise that a significant proportion of baby boomers, approximately 68%, were able to achieve homeownership by the age of 40, as they were not burdened with the same level of financial strain associated with higher education.
2. Increasing fears of recession
Despite the fact that the United States has not yet entered a recession (at least according to the US government), concerns about a potential economic downturn have been present since at least the previous summer. The prevailing sense of economic uncertainty and apprehension about what the future holds can make it challenging for individuals to make significant financial commitments that have long-term implications, such as embarking on a 30-year mortgage.
During periods of economic uncertainty, individuals tend to exhibit caution and hesitate when it comes to making financial decisions that could have long-lasting consequences. The fear of economic instability and the potential impact it may have on personal finances and job security can lead to a sense of unease and reluctance to undertake large financial commitments.
Taking on a 30-year mortgage is a major financial decision that involves a considerable level of financial responsibility and commitment. It requires confidence in one’s ability to meet mortgage payments over an extended period of time. However, in times of economic uncertainty, individuals may hesitate to assume such long-term financial obligations due to concerns about potential job loss, reduced income, or other unforeseen circumstances that could impact their ability to meet mortgage payments.
3. Uncertainty about student loan forgiveness
The fate of President Biden’s student loan forgiveness program is currently pending a decision from the Supreme Court, leaving the country in anticipation of the outcome. However, even if the program proceeds as intended, it is important to note that not all graduates will qualify for complete loan forgiveness.
Eligibility for forgiveness is contingent upon meeting certain income thresholds, meaning that those whose income exceeds a specified limit may not benefit from the program. Furthermore, even for those who do qualify, the maximum amount of debt that can be forgiven is set at $20,000.
Considering the financial realities faced by many graduates who have accumulated significant student loan debt, the potential forgiveness of $20,000 may not have a substantial impact on their overall debt-to-income ratio. This ratio is a crucial factor that mortgage lenders consider when assessing an individual’s eligibility for a mortgage loan.
With many students graduating with student loan debt reaching up to $100,000 or more, the forgiveness of just $20,000 might not significantly alleviate the burden or bring them closer to meeting the desired debt-to-income ratio required by most lenders.
4. Increasing rental payments
As of May 2022, the median rent payment had experienced a significant increase of over 26% compared to the pre-pandemic year. This surge in rent prices has posed a considerable financial challenge for individuals and families who rely on rental housing.
Unfortunately, the prospects of decreasing rent prices in the near future are rather slim. Experts predict that the trend of rising rental costs is likely to persist throughout much of 2023, if not longer. This persistent increase in rent prices further increases the financial burden faced by renters, making it increasingly difficult for them to allocate a larger portion of their income towards rent payments.
5. They grew up in financially unstable times
In the aftermath of the 2008 housing market crash, a devastating event in the United States, a staggering number of 10 million Americans found themselves facing the harsh reality of losing their homes. The repercussions of this crisis were far-reaching, affecting individuals and families from various socioeconomic backgrounds. In many cases, the loss of employment played a pivotal role in precipitating the loss of homes.
Among those who were profoundly impacted by this period were the youngest members of Generation Z. At the time, these zoomers were just around nine or ten years old, and their formative years coincided with the economic downturn. Growing up in households where parents experienced job loss or families faced the distressing prospect of losing their homes undoubtedly left a lasting impression on the young minds of Gen Z.
