Millennials are now the largest group of U.S. home buyers — 37% of all buyers in 2018, per the National Association of Realtors. But many millennials still rely on the “Bank of Mom and Dad” to get a home, because they can’t afford the down payment. Millennials make an average down payment of about 8% of the purchase price, which is considerably less than baby boomers who put down around 20%.
While millennials will still comprise the largest group of home buyers for the foreseeable future, another cohort is closer on the horizon: Generation Z.
These are people born between 1995 and 2010, and the oldest of them are starting to buy houses. Gen Z represented 2.4% of the home-buying customers of my firm Caliber Home Loans in 2019, up from about 1% in 2018. What’s more, Gen Z made up almost 2% of our volume. They are a considerably smaller amount of our refinancing customers (under 1%) likely because those who have already bought a home haven’t owned one for long enough to take advantage of falling interest rates.
In total, Gen Z made up some 2% of home-buying loans in the fourth quarter of 2019. These young people bought homes with a median price of $160,000, which is considerably well-below the $256,500 of millennials, according to Realtor.com. Gen Z is also putting down about 5% for a down payment. Most of the home buying activity in this generation is concentrated in the Southern and Midwestern U.S., where prices aren’t as high as on the coasts.
The trend of Gen Z 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 — Gen Z is 20% of Brazil’s population, for example.
Unlike millennials, Gen Z didn’t fully experience the Great Financial Crisis of 2008.
In the U.S, Gen Z will reshape the homebuying market with their norms, tastes, preferences, and aspirations. Unlike millennials, Gen Z didn’t fully experience the Great Financial Crisis of 2008, so they may not be as risk averse when it comes to purchasing a home. They may be more willing to take the leap into home ownership, embarking upon their own version of the American Dream with less misgiving.
Moreover, this group of folks are “digital natives” in that they haven’t known a world without the internet, mobile 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 in a branch.
According to a McKinsey study, Gen Z values uniqueness and community. They may want homes that are unusual or are within walking distance of friends and relatives. Having the freedom to walk outside a home and have access to restaurants, concerts and other experiences is something that they prioritize.
There may also be a significant overlap of Gen Z and those who work in the gig economy, as work becomes increasingly more fluid and less tied to one employer. It’s incumbent upon mortgage companies to make it easier for these young Americans to access financing to purchase a home. Just as the nature of work is changing, so too should getting a mortgage. It’s important that mortgage companies adapt to meet the changing needs of our prospective customers.
Saniv Das is CEO of Caliber Home Loans. Previously, he was the CEO of CitiMortgage.