86% Of Gen Zers Want To Buy A Home, But When Will They Be Ready?

• Of the 86.2% of Gen Zers who want to purchase a home, nearly 45% are looking to purchase their first home in the next 5 years.
• Gen Zers think their home will cost 38.5% less than the U.S. median home value of $363,300.
• Three-quarters of the generation regularly contributes to their savings, with nearly 10% saving for a down payment on a home.

While millennials have been considered the generation of perpetual renters, it appears that Generation Z does not plan to follow in their footsteps. A new Rocket Homes^® survey of over 1,400 adult members of Gen Z (ages 18 – 24) finds that 86.2% have already set their sights on homeownership.

Gen Zers are aware of the obstacles that may hinder their ability to become homeowners, but despite them, they have plans to buy their own home. However, the study finds that the greatest obstacle in Gen Zers’ way may actually be their unrealistic expectations.

Generation Z Wants To Purchase A Home Sooner Rather Than Later

Not only do the majority of Gen Zers want to purchase their own home, but most are also looking to do so in the foreseeable future. Of the 86.2% who indicated an interest in homeownership, 44.6% plan to purchase a home in the next 5 years.

Although one may expect that older members of the generation would be thinking more seriously about homeownership than younger members, there was no significant difference between groups. Gen Zers aged 18 through 21 were just as likely as those aged 22 through 24 to state a desire to become homeowners in the short time span.

There was, however, a difference when it came to those interested in buying a home in the next decade. While 28.5% of all Gen Z respondents said they plan on purchasing a home in the next 10 years, younger Gen Zers were 6% more likely to aim for this time frame.

The rest of the respondents may be intent on purchasing a home but seem only to be starting to wrap their heads around the prospect. Just 7.2% plan to buy a home in the next 15 years and 19.7% are interested in buying a home but don’t plan to buy one any time soon.

Gen Zers’ desire to purchase a home primarily stems from the fact that they view homeownership as a means of starting a family (27.2%), gaining the freedom necessary to do what they want with their home (25.5%) and building wealth (13.2%). Generation Z seems so eager to become homeowners that even those who stated they don’t want to buy their own home appear to have said so because they doubt their actual ability to afford one: 40% of those members who don’t want to buy a home said their primary reason was that they don’t think they’ll have enough money.

Gen Zers Are Aware That Purchasing A Home Will Be Challenging

Gen Zers’ aggressive home buying timeline may make their outlook appear rosy, but they are cognizant that the road ahead will not be easy. When asked what they thought would make it most challenging for them to purchase a home, 73.9% selected financial obstacles.

While 21.9% said they don’t think they’ll have enough savings for a down payment, 18.4% said they don’t think they’ll be able to find a home in their price range. The latter selection may suggest that these individuals are also aware of the supply constraints that have prevented first-time home buyers from entering the market.

For 16.1% of Gen Zers, the concern is that they won’t have good enough credit to buy a home. However, a quarter of the individuals who are concerned about their credit score admit to never having checked it before.

Although excessive student loan debt has been repeatedly reported to be the top barrier that kept millennials out of the housing market, only 10.5% of Gen Z members listed it as their primary obstacle. Meanwhile, just 7% view the mortgage qualification process as potentially keeping them from achieving homeownership.  

Notably, for 1 in 5 Gen Zers, the assumed barrier to homeownership is not financial but instead knowledge-based: 20.8% said that not knowing where to begin will make it most challenging for them to purchase a home. While the majority of the generation is anxious to become homeowners, many still lack the know-how when it comes to taking steps toward achieving this milestone. Thus, education initiatives will be imperative in ensuring that the younger generation is not deterred from purchasing their first home.

Generation Z Underestimates How Much It Costs To Buy A Home

Yet, it’s not just a fifth of Gen Z that appears to be unaware of what is required to become a homeowner. Although the majority are worried about the financial burdens of homeownership, 80.6% of the generation underestimates how much it costs to purchase a home.

As part of the study, Gen Z respondents were asked to project how much their first home will cost. According to the St. Louis Federal Reserve, the U.S. median sales price of existing homes was $363,300 in June 2021, when the survey was conducted. The average price that respondents provided was $223,468, which is 38.5% below the actual median.

Upon closer examination of Gen Zers’ pricing projections, it appears that respondents are still somewhat sensitive to the trends in their region of the country. Although the generation underestimated housing prices across the board, those living in more expensive areas of the country typically projected that homes were worth more than those living in more affordable areas.

In the Northeast, where the median sales price is $412,800, Gen Z estimated that their homes would cost an average of $267,922, marking a 35.1% difference. Gen Zers were the most accurate in the Midwest, where homes are the cheapest. The average home price estimated by Midwesterners was $200,399, which is just 28.1% below the actual median ($278,700).

Although homes in the South tend to be more expensive than in the Midwest, Gen Zers in the South had the lowest projections. The average price that those in the South provided was $193,960, 37.8% below the area’s median ($311,600). While Gen Zers living in the West provided the highest projections for the cost of their future home ($292,215), prices in the region are far higher than they are in the rest of the country ($507,000). Therefore, their estimation was still off by 42.4%.

Gen Zers May Not Enter The Housing Market As Soon As They’d Like

Generation Z’s universal tendency to underprice real estate is a clear indication that they don’t know what to expect from the housing market. While they are aware the expenses involved in homeownership will be a challenge for them to afford, their expectations for home prices are even lower than market value. As a result, Gen Zers are even less prepared for homeownership than they realize.

Not knowing how much they need to save will certainly be an obstacle for the generation, especially those striving to purchase their first home by 2026. However, what makes Gen Z’s chances of achieving their current homeownership goals even more improbable is the fact that most haven’t started saving for them.

A quarter of Gen Zers (25.4%) do not contribute to their savings regularly. Of the 74.6% who are routinely saving, most are doing so for reasons other than purchasing a home. The main reasons Gen Z reported saving were for an emergency fund (20.3%), nothing in particular (14.3%) and paying off debt (11.3%).

While the most common selections indicate that the majority of the generation is, in fact, looking to the future, it appears that their dreams of homeownership may still be too distant to encourage them to take practical steps towards achieving it. Only 8.3% of Gen Zers who are actively putting money away each month said they’re saving for a down payment on a home.

It’s possible that members of Gen Z haven’t begun to save for homeownership because they underestimate how much a down payment will cost them. Assuming wages rise with home prices, Gen Zers will have to save around $600 a month over the next 10 years to afford a 20% down payment on a median-priced home. However, they think they’ll need to save just about $370 a month. If they’re only saving at the rates they expect they’ll need, Gen Zers will be short, which could force them to put off the milestone for an additional 6 years.

Therefore, it’s far less likely that this new generation of adults will be able to purchase their first home in their desired timeframe with a traditional mortgage. The oldest Gen Zers are still just 24 years old, so they have plenty of time to become homeowners. It just may mean that, like it or not, their timelines are closer to that of millennials.

Yet, Gen Zers do have options at their disposal, which can help them mitigate some of the challenges ahead. Like their millennial counterparts, they can choose to live with their families while they save for a down payment. Or, they can take advantage of the programs and grants that make homeownership more affordable. With Gen Z’s strong desire to buy, we can assume that demand for these resources will be higher in the future – assuming steps are taken to ensure the generation is made aware of them.

Methodology

To learn about Generation Z’s home buying preferences and financial habits, Rocket Homes surveyed 1,483 adult members of the generation. The survey was conducted online from June 26 – July 24, 2021. Gen Z adults were defined as those born between the years 1997 and 2003, according to the demarcation previously established by the Pew Research Center.