Gen Zers, Millennials Cite Affordability as Deterrent to Homeownership

Despite continued affordability challenges, the American dream of homeownership is not dead for Gen Zers and Millennials, who believe their path to get there will be challenging and may even require some luck. A new report from Zillow finds that 52% of Gen Zers, and 57% of Millennials who don't currently own a home believe they'd need to win the lottery to afford one.

Outside of winning the lottery, large shares of both generations (95% of Gen Zers and 94% of Millennials) say they would have to make some life changes in order to make their dream of homeownership a reality. About 40% of Millennials say they would need to get a second or third job, and 28% of Gen Zers say they'd have to make a career change in order to afford a home right now.

Home values are up 3% over the past year, but during the peak of the pandemic, home values were rising in the double-digits. Record-fast home value growth has already been squeezing budgets, and now rising mortgage rates are compounding the affordability challenges many buyers are facing.

"These findings highlight the gap between Gen Z and Millennials' dream of owning a home and their ability to actually make it happen," said Zillow's Home Trends Expert Amanda Pendleton. "Mortgage rates have been on the rise since last year, sending monthly housing costs through the roof—the typical monthly mortgage payment is now $431 higher than a year ago. Combine rising rates with record-breaking home value appreciation and it's easy to understand why younger generations are wondering how they'll ever be able to afford a home."

Survey respondents stated that when it comes to a down payment, 36% of Gen Zers say they'd give up their beloved social media if it meant having enough cash to put down on a starter home. To put the down payment challenge in perspective, 20% down on the typical U.S. home ($334,944) means coming up with nearly $67,000. In pricier markets, a down payment can easily exceed six figures.

Generation Zers and Millennials are optimistic about the future, as two-thirds of those polled say it's realistic to think they can buy a home within the next five years.

Fannie Mae's latest Home Price Index (HPI) found that, on a quarterly basis, home prices rose a seasonally adjusted 1% in Q1 2023, above the 0.0% growth seen in the prior quarter. On a non-seasonally adjusted basis, home prices also increased by 1% in Q1 2023.

"As expected, the annual rate of increase in home prices has slowed dramatically in response to the rapid and significant increase in interest rates," said Douglas G. Duncan, Fannie Mae Senior VP and Chief Economist. "Still, the fact that prices rose slightly in the first quarter is evidence of significant pent-up mortgage demand, despite ongoing affordability constraints. Even though mortgage rates remain elevated compared to the previous few years, the acute lack of housing supply remains supportive of home prices. Of course, the shortage of homes for sale is currently being exacerbated by the so-called 'lock-in effect,' which continues to disincentivize huge numbers of households with low mortgage rates from listing their homes."