Study finds buying a home is difficult, especially if you’re part of Generation Z

Buying a private home today is not easy. But for Generation Z – people aged 18 to 27 as of 2024 – especially those with limited income and smaller savings funds, the future may not get any easier.

According to a report published in late October by InMyArea.com, Gen Zers who own homes have worked hard to get them, using tactics such as working a second job, moving to more affordable areas and buying foreclosed homes. .

If you’ve been watching the housing market lately, it’s no surprise that Gen Z is having a hard time buying a home. In addition to sky-high home prices, mortgage interest rates remain elevated, reaching an average of 6.88% for a 30-year fixed-rate mortgage as of Oct. 29, according to Zillow data provided by Investopedia. That’s almost a full percentage point higher than the 5.89% average we saw in September ahead of the Fed meeting.

If you’re a member of Generation Z and hoping to buy a home, should you buy now or wait until interest rates drop? It depends on your reasons for wanting a home, the state of your finances and credit, and your belief that mortgage interest rates will fall in 2025.

The average home in the US costs $359,892, but the average annual income is only $60,580.

The median U.S. home price is $359,892, up 2.7% year-over-year as of September 2024, according to Zillow. In the third quarter of 2024, the average weekly earnings of the 120.8 million full-time workers in the United States was $1,165, according to the U.S. Bureau of Labor Statistics (BLS). Multiply by 52 weeks and you get an average annual salary of about $60,580.

With such an annual salary, it is not easy to buy an average house. After a 20% down payment, your monthly mortgage payment of principal and interest on a 30-year home loan at 6.88% will be $1,892. If you only make $5,048 a month (before taxes and any deductions), this mortgage eats up a significant portion of your money. For younger Gen Zers, buying a home becomes even more challenging as their average salary may be even lower as they begin their careers.

According to the BLS, workers ages 16 to 24 earned an average of $746 per week in the third quarter of 2024—about $38,792 per year. Even older Gen Z (ages 25 to 27) fall short of the average U.S. salary, earning just $57,564 a year on average.

Despite lower-than-average wages, about 25% of Gen Z adults own their homes, according to research from InMyArea.com. How did they reach this milestone?

About a third of Gen Zers in the study said they worked multiple jobs to afford a home, and 22% moved to a more affordable area.

The latter strategy makes sense. Buyers can save a significant amount of money by moving to a new state. Zillow reported that as of September, the median home price in New Jersey was $535,982. But in West Virginia, the median home price is much lower: $167,571. Gen Zers who are expanding their search from a more expensive housing market like New Jersey to a more affordable one like West Virginia can stretch their homebuying dollars.

The study also found that 18% of Gen Z buyers received money from family members, 15% bought a renovation to reduce upfront costs, and 11% bought the property from a friend or family member. Another 7% said they bought a foreclosed property (a higher rate than any other age group), and 8% received a government grant or worked for a first-time homebuyer assistance program.

Despite the financial barriers to homeownership, 87% of Gen Zers told InMyArea.com that they agree that home ownership is part of the American dream.

The study also found that young people are keen to buy. A total of 32% of respondents aged 18 to 27 who don’t yet own a home said they plan to buy one within the next five years, while 38% said they plan to buy one in more than five years. Only 30% said they had no plans to buy a home or were unsure when they would buy a home.

Buy now or wait?

So, if you’re a member of Generation Z, should you buy a home today, or should you wait until mortgage interest rates drop?

Darren Tooley, senior loan officer at Cornerstone Financial in Southfield, Michigan, said waiting for lower rates could pay off for younger homebuyers.

Task? No one can accurately predict how mortgage interest rates will behave. This means younger buyers may be waiting a long time for rates to drop.

“Mortgage rates are widely predicted to fall in the fourth quarter of this year and next year,” Tooley said. “And I believe that it will be so. But rates will never go up or down in a straight line. There may be days or weeks or months when rates go up, even in a declining rate market.”

But what if you want to buy a home now? Perhaps your family is growing and you need more space. Perhaps you’ve been transferred to a new city for work and want to put down roots. Is buying a home today, when interest rates are higher, a bad decision?

According to Tooley, this is not the case. The right time to buy a home is when it makes sense for you, no matter what the interest rates are.

“I firmly believe this is always a great time to buy a home,” Tooley said. “When you look at how home values ​​have changed over the years, buying a home is one of the best and safest investments a person can make.”

Plus, you can always apply for a mortgage refinance to lower your monthly payments and pay less interest over the life of your loan.

How we track mortgage rates

The national and state averages above are provided unchanged through the Zillow Mortgage API, assuming an 80% loan-to-value (LTV) ratio (i.e., a down payment of at least 20%) and an applicant’s credit score in the 680 range –739. The rates received represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may differ from advertised rates. © 2024 Zillow, Inc. Use subject to Zillow’s Terms of Use.