Millennials are now the largest group of home buyers in the United States – 37% of all buyers in 2018, according to the National Association of Realtors. But many millennials still rely on the “Mum and dad’s bank” to get a house, because they can’t afford the down payment. Millennials pay an average down payment of around 8% of the purchase price, which is considerably less than the baby boomers who put in about 20%.
While millennials will still be the largest group of home buyers for the foreseeable future, another cohort is on the horizon: Gen Z.
These are people born between 1995 and 2010, and the oldest of them are starting to buy houses. Gen Z accounted for 2.4% of home buyers in my business Caliber home loans in 2019, up from around 1% in 2018. In addition, Generation Z accounted for almost 2% of our volume. This is a considerably lower number of our refinancing clients (less than 1%) probably because those who have already bought a home haven’t owned one long enough to take advantage of the lower interest rates. .
In total, Generation Z has composed 2% home purchase loans in the fourth quarter of 2019. These young people bought homes with a median price of $ 160,000, which is well below Millennials’ $ 256,500, according to Realtor.com . Gen Z also pays around 5% for a down payment. Most of this generation’s home purchases are concentrated in the southern and midwestern United States, where prices aren’t as high as on the coasts.
Gen Z’s trend of buying homes will only accelerate as they graduate from high school and college, get jobs, and start families. The effect of this generation is already being felt around the world – Generation Z is 20% of the population of Brazil, for example.
“Unlike Generation Y, Generation Z did not fully experience the Great Financial Crisis of 2008.“
In the United States, Generation Z will reshape the home buying market with their standards, tastes, preferences and aspirations. Unlike Millennials, Gen Z didn’t fully experience the Great Financial Crisis of 2008, so they may not be as averse to risk when it comes to buying a home. They may be more willing to take the step toward homeownership, embarking on their own version of the American Dream with less trepidation.
In addition, this group of people are “digital natives” in that they have never known a world without the Internet, cell phones, social media and the Internet of Things. This means Gen Z may want to complete the entire mortgage process online instead of talking to someone at a branch.
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According to a McKinsey Study, Generation Z values uniqueness and community. They may want unusual homes or within walking distance of friends and relatives. Having the freedom to step out of a house and have access to restaurants, concerts, and other experiences is something they prioritize.
There can also be a significant overlap between Gen Z and those working in the odd-job economy, as work becomes increasingly fluid and less tied to a single employer. Mortgage companies have a responsibility to make it easier for these young Americans to access financing to buy a home. Just as the nature of work changes, getting a mortgage loan should change too. It is important that mortgage companies adapt to the changing needs of our potential clients.
Saniv Das is CEO of Caliber home loans. Previously, he was CEO of CitiMortgage.
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