In its most recent study, Zillow Group examined the newest generation to enter the housing market – Generation Z.
Wait, what? Already? Aren’t they even old enough to enter the housing market?
As it turns out, yes, they are. Generation Z is considered to be those born from 1995 to 2010, meaning the oldest in the generation are now 22 years old.
The Zillow Group Report on Consumer and Housing Trends 2017 shows this new generation now makes up more than 21% of the U.S. population, and is the most ethnically and racially diverse generation in our history. And they are beginning to enter the housing market – as renters.
However, this generation is just as likely as older generations to say owning a home is a key component of the American Dream. In fact, 57% responded that they already considered buying a home while looking for their last rental.
So, what defines this new generation? What makes them tick? The report showed they work hard to win a home, and even submitted more applications than any other generation at 3.1 versus 2.5 applications for all renters.
But despite the higher number of applications submitted, they also move more quickly through the process and spend the least amount of time searching. Generation Z typically spent less than one month searching for a place to live.
“It’s encouraging to see that Generation Z is inheriting the same notion of what home means as their parents and Millennial siblings,” Zillow Chief Marketing Officer Jeremy Wacksman said.
“These tech-savvy, yet risk adverse renters are bringing their social personalities home, desiring communal amenities geared toward bringing people together,” Wacksman said. “They prefer living with others to living alone, and they put their vast social networks to work during every step of the rental search process. As they mature and look toward homeownership, it will be interesting to see how their aspirations and preferences will shape the housing market.”
Currently, the housing market is still focused on Millennials, realizing they don’t all live at home with their parents, and are actually less likely to live at home than Baby Boomers were at that age.
And while some studies show factors such as student debt could delay some Millennials from homeownership for up to seven years, more and more they are becoming the driving force behind housing demand.
In fact, a study late last year from Ellie Mae shows that not only are Millennials buying homes, but they are also refinancing.
Zillow’s study shows Millennials poured about $514 billion into the U.S. housing market over the past year, and became the largest generation of homebuyers. However, they do continue to struggle with affordability constraints.
More than half of young first-time buyers, about 53%, make multiple offers to buy their home, and only 39% of Millennials can give a down payment that’s 20% or higher. Many of them, about 21%, put down 5% or less in order to secure a mortgage.
The study shows that even as Millennials are looking for a home, 62% of them accept that finding one is not a sure thing, and look for rental homes at the same time. In order to find their home, 37% answered they were forced to go over budget, compared to 29% of all homebuyers.
“In many cities across the US, the housing market is extremely competitive, especially for first-time buyers who are looking to purchase a starter home. Young buyers often start their careers in fast-growing cities in which the market is particularly tough, and they’re trying to save for a down payment while making record-high rent payments,” Zillow Chief Economist Svenja Gudell said.
“The Zillow Group Report gives us a behind-the-scenes look at how young buyers, in particular, are finding resourceful ways to cope with high home prices and fierce competition,” Gudell said. “Whether it’s searching for a rental as a Plan B, looking outside their preferred neighborhood, or cobbling together a down payment from multiple sources, these buyers are willing to try every trick in the book in order to find a place to call home.”
Overall, for every generation, homeownership is out of reach for many, according to the study. More Americans are renting now than at any point in history, and 40% of families with children at home are renters.
Renters typically face higher monthly payments than those that own their home, and 79% of renters who moved in the last year responded that their rent increased before they moved. In fact, 57% of those that moved said this increase was the reason they moved.
What’s more, about 37% of renters who have not moved in the past year answered they can’t afford to go anywhere else.
At a recent black tie gala in the Los Angeles area, one panelist for the I Survived Real Estate event commented that rent prices are becoming unmanageable.
“Home prices may not be at an all-time high compared to incomes, but rents are,” said John Burns, John Burns Real Estate Consulting CEO.
The 2017 Zillow Group Report is the second annual survey of U.S. home buyers, sellers, owners and renters, and asked more than 13,000 U.S. residents aged 18 to 75 about their homes – how they search for them, pay for them, maintain and improve them and what frustrations and aspirations color their decisions.