SANTA CLARA, Calif. –– The oldest members of Gen Z are beginning to enter the homebuying stage of their lives, but they will have to compete with the might of the millennial generation for the nation’s depleted inventory of entry level homes. Gen Z, the oldest of whom turned 22 in 2019, currently make up 2 percent of mortgages, according to realtor.com®‘s Fourth Quarter 2019 Generation Propensity Report, but that number will continue to grow as the generation ages and their earning potential increases.
“Gen Z is entering the housing market under the radar, but at a projected 65-million strong, they are going to begin making some major waves,” according to realtor.com®‘s Senior Economist George Ratiu. “However, as the young generation launches into homeownership, it is facing strong headwinds, including competition from millennials, many of whom are entering homeownership later in life, and a marketplace largely devoid of entry-level options.”
According to a survey conducted in 2018 by realtor.com®, 40 percent of Gen Z members stated they want to own their own home by the age 25. As the oldest cohort of Gen Z approaches that age, realtor.com®‘s recent analysis shows they are starting to steadily increase their share of national home purchases.
“With major generational transitions taking place across a housing landscape clouded by lack of new construction and a shortage of inventory, young Americans’ preference for homeownership is a ray of sunshine,” added Ratiu. “It stands in contrast to the rhetoric of the past decade, cataloging young people as the ‘renter generation,’ and provides ample evidence that a significant ramp-up in affordable new home building is needed to meet the growing demand.”
Depleted entry-level inventory
With a lack of homes priced under $200,000 being built or available for-sale, Gen Z, those born between 1997 and 2012, will find it increasingly difficult to find a home within their price range.
During the fourth quarter of 2019, the median purchase price of a home by Gen Z was $160,600. Then in December, the inventory of homes priced below $200,000 decreased by 18.1 percent year-over-year, according to realtor.com®‘s December Monthly Trends Report. Although Gen Z increased their median purchase price by 11 percent over the past year, they are still many years away from catching up to millennials both in life stages and housing budgets.
In order to find homes within their budget, Gen Z is turning toward smaller Midwestern and Southern markets that boast higher affordability. Toledo, Ohio; Grand Rapids, Mich.; and Wichita, Kan., were the top three metros where Gen Z had the largest share of homeownership. The top 10 Gen Z markets had a combined median listing price of $224,500, which is 25 percent less expensive than the nation’s median listing price of $300,000.
| Top 10 Generation Z Housing Markets | ||||
| Metro | Region | Q4 2019 Generation Z Share of Loan Originations | December 2019 Median Listing Price | Q4 2019 Generation Z Median Purchase Price |
| Toledo, Ohio | Midwest | 5.35% | $151,500 | $91,333 |
| Grand Rapids-Wyoming, Mich | Midwest | 4.43% | $284,700 | $140,000 |
| Wichita, Kan. | Midwest | 4.40% | $199,250 | $113,667 |
| Virginia Beach-Norfolk-Newport News, Va.-N.C. | South | 4.36% | $304,050 | $209,505 |
| Winston-Salem, N.C. | South | 3.53% | $275,050 | $114,667 |
| Scranton–Wilkes-Barre–Hazleton, Pa. | Northeast | 3.43% | $159,950 | $135,333 |
| Oklahoma City, Okla. | South | 3.41% | $250,050 | $117,667 |
| Cincinnati, Ohio-Ky.-Ind. | Midwest | 3.39% | $259,950 | $129,333 |
| Youngstown-Warren-Boardman, Ohio-Pa. | Midwest | 3.32% | $119,950 | $86,487 |
| Baton Rouge, La. | South | 3.14% | $240,550 | $165,333 |
Gen Z will be competing with millennials for years to come
The largest cohort of the millennial generation turns 30-years-old in 2020 and they are hitting the housing market in full force. At the end of the fourth quarter of 2019, millennials made up the largest generational segment of homebuyers, growing their share of home purchase mortgages to 48 percent.
Millennials (born between 1981 and 1996) began entering the market at the height of the housing market crash in 2008 and the subsequent recession. Additionally, the generation found itself saddled with massive student loan debt, which caused many to delay their goals of homeownership, but that is all in the past. Now, as Gen Z begins to enter the market they are facing increased competition from millennials who patiently waited to purchase a home.
At the moment, Gen Z and millennials have differing preferences on where to buy a home. Of the markets on Generation Z’s top 10 list, only Grand Rapids, Mich., and Baton Rouge, La., appeared on the top 10 list for millennials. Larger and trendier markets such as San Francisco, Boston, and Denver were the most different between the generations. All three markets made it to the top 20 markets for millennials but ranked between 81 and 98 for Generation Z, most likely due to high housing prices shutting out Gen Z buyers. As Gen Z turns their interest toward larger metros in the future, competition between the generations is likely to increase, but at the moment, the two generations have a different focus, according to the realtor.com® analysis.
Methodology
The Report on Loan Originations by Age and Generational Groups is based off of a realtor.com® analysis of a sample of residential mortgage loan originations from Optimal Blue. The top market rankings were calculated using a group’s mortgage origination share.
The generational groups are defined as follows:
- Millennials: born between 1981 and 1996
- Generation Z: born between 1997 and 2012
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Source: realtor.com