Move over, millennials. Forget Generation X. (Everyone else seems to have already done so.) And it’s not always about you, baby boomers. Generation Z is the latest group to start dipping its toes into the housing market—and this money-conscious group is already snapping up affordably priced homes.
These whippersnappers, born between 1997 and 2012, are now buying up about 2% of the homes on the market, according to realtor.com®’s fourth-quarter generational propensity report. They’re purchasing property at the same rate as the silent generation, those born before 1946. And while that may not sound like much yet, this financially savvy generation is on track to become a home-buying force to be reckoned with in the coming years.
The report is based on a realtor.com analysis of residential mortgages (for purchases, not refinances) from real estate data firm Optimal Blue, which specializes in lending records. This is the first time Gen Z has been included in this report.
“The oldest of them are finishing college and starting jobs, especially if they were the ambitious types who took a lot of AP classes in high school,” says Senior Economist George Ratiu of realtor.com. “For this generation, homeownership seems to be a part of their growing up. Contrary to expectations, this generation is just as much interested in owning the home they live in as prior generations.”
But most of the Gen Z crowd doesn’t have a lot of money just yet—although this is one generation already known for saving its pennies. The oldest members are still in their early 20s. So they’re choosing cheaper homes in smaller, less expensive places in the most affordable parts of the country, such as smaller cities in the Midwest and South.
“Gen Z is more practical with their money than previous generations,” says Jason Dorsey, president of the Center for Generational Kinetics, a Gen Z and millennial research firm based in Austin, TX. “They’re better positioned to enter the home-buying market than millennials when millennials were the same age. They’re savers, and they’re looking for stability.
“Gen Z could leapfrog many millennials financially, as they’re starting out on better footing,” he continues.
They were buying starter homes for a median $160,600 in December. That’s about 37% less than millennials are spending and about 46.5% less than the national median price of $300,000.
But it’s 11% more than members of Gen Z spent in the previous year. Meanwhile, millennials spent about 7% more as their median home price rose to $256,500.
And Gen Z is putting only about 5% down. That’s likely because the group is just entering the workforce and hasn’t had as much time to save up for a down payment. That puts the group at a disadvantage because buyers who don’t put at least 20% down typically have to pay for private mortgage insurance.
“They’re carrying a slightly higher [financial] burden on a monthly basis because they’re putting down less than 20%,” says Ratiu.
Millennials’ down payments were about 8.5%, while Gen X contributed 11.5%, and boomers had 17.6%.
The top market for Gen Z buyers was Toledo, OH, where they took out the most mortgages compared with other metropolitan areas where they became homeowners in the last quarter of the year. It was followed by Grand Rapids, MI; Wichita, KS; Virginia Beach, VA; Winston-Salem, NC; Scranton, PA; Oklahoma City, OK; Cincinnati; Youngstown, OH; and Baton Rouge, LA.
“They’re making a conscious choice to buy there, because most of these places have strong local economies, are university towns, and are very affordable,” says Ratiu. “Many of these people come out of their universities and choose to settle where they went to school.”