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These Are the Biggest Challenges for Today’s Young Homebuyers
By Leslie Cook MONEY RESEARCH COLLECTIVE
Gen Zers and millennials are concerned about their ability to afford a house and qualify for a mortgage, per a new RE/MAX report.
Younger generations may be holding on to the American dream of homeownership, but they face big challenges in today’s challenging market.
A recent survey by brokerage RE/MAX shows that nearly two-thirds of prospective Gen Z and millennial homebuyers in the U.S. are primed and eager to own a home. Sixty-five percent say they feel knowledgeable about the real estate market, and more than half are confident about their financial preparedness. However, that desire to buy and settle down is tempered by concerns about the lack of affordability.
“Homeownership is still an important milestone,” Amy Lessinger, president of RE/MAX LLC, said in a news release. “While current market conditions have impacted timelines, this generation of homebuyers is resolute in their desire to achieve [it].”
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View RatesAffordability issues imperil homebuyers’ plans
High mortgage rates and home prices, both due to inflation and a lack of enough inventory to meet demand, are among the major obstacles hindering Gen Z and millennial buyers (folks born between 1981 and 2012). But other concerns include additional costs that impact housing affordability, like closing costs and down payments.
Mortgage rates have been averaging close to 7% for most of the year, increasing the cost of home financing and making it harder for would-be borrowers to qualify.
Higher rates have resulted in a typical monthly mortgage payment of about $2,900 on a $442,000 loan, the median home sales price last month. If the home price is higher, that payment easily surpasses $3,000.
Unfortunately for many buyers, home prices keep climbing, although at a slower pace than a year ago, and just how much an “affordable” home costs depends on its location. According to a report from listing site Zillow, the price of a typical starter home is $196,611 nationwide. However, a starter home costs at least $1 million in more than 200 cities around the country and requires a much larger financial commitment.
Other factors prospective Gen Z and millennial buyers need to consider when calculating affordability include the down payment and closing costs.
According to data from the National Association of Realtors, first-time buyers make an average down payment of 8% of a home’s purchase price. Closing costs range between 2% and 6%. In a city where the starter home costs $1 million, that means a down payment of $80,000 and up to $60,000 in closing costs.
The combination of these factors has already led to a record number of canceled sales contracts for the month of June, so it’s no wonder they are also a concern for prospective buyers.
Most common worries for Gen Z and millennial buyers
There are other factors that younger buyers view as roadblocks to homeownership under the current market conditions, according to the RE/MAX survey. These include factors before and after the home purchase. (Numbers don’t add up to 100 because respondents were allowed to select more than one answer.)
Top 5 concerns before buying
- Affording the down payment and closing costs — 40%
- Saving for a down payment — 39%
- Qualifying for a mortgage — 39%
- High interest rates — 36%
- Difficulty finding the right property — 36%
Top 5 concerns after buying
- Maintenance and upkeep costs — 50%
- Property taxes — 49%
- Monthly mortgage payments — 46%
- Homeowners insurance — 30%
- Housing market fluctuations — 24%
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Leslie Cook is Money's lead real estate editor, covering news stories about mortgages and how rate movements affect the housing market and writing and editing stories that inform our readers about real estate trends and how they affect homebuyers and sellers. Leslie writes a weekly newsletter, Money Moves, that covers a wide range of real estate topics in addition to her weekly articles. Her work has been featured on Apple News, MSN and ConsumersAdvocate.org. Leslie has been covering the mortgage and real estate industry at Money since 2019 and has interviewed industry leaders, such as Lawrence Yun, chief economist at the National Association of Realtors, and Glenn Kelman, CEO of brokerage Redfin. She has been a guest on the This Morning with Gordon Deal radio show, interviewed by The Mortgage Note, and served as moderator for ServiceLink’s State of Homebuying webinar. While at Money, Leslie has contributed to several of Money’s rating and ranking features, including Best Places to Live, Best Places to Travel and Changemakers. She has also played a major role in researching and selecting Money’s Best Banks rankings for the past four years. Before joining Money as a staff writer, Leslie was a reporter for Caribbean Business Newspaper in San Juan, Puerto Rico, covering human resources, telecommunications and computers. She graduated cum laude from Bryn Mawr College in Pennsylvania with a bachelor’s degree in history. The research and interviewing skills learned there have contributed to Leslie’s ability to provide accurate information on her area of expertise and elicit informative responses from her interviewees.