Millennials make up the next largest homebuying group after baby boomers. Gen Z, while only making up 3% of today's homebuyers, will significantly impact the market in the coming years. Understanding the unique challenges and needs of younger generations in the housing market is crucial for lenders and housing professionals.

Homeownership trends among younger generations

Homeownership in the U.S. made significant strides in the years leading up to and into the pandemic. The U.S. homeownership rate in 2022 (65.8%) was higher than in 2019 (64.6%) as the country was still recovering from the foreclosure crisis in 2004 and the Great Recession in 2008.

Generation Z (born 1997 to 2012) and millennials (born 1981 to 1996) drove the increase, partly due to low interest rates and flexibility around remote work. The homeownership rate among adults under 35 and 35 to 44 rose by two percentage points between 2019 and 2022 in both age groups. Comparatively, the rate remained flat for adults 45 to 54 and 55 to 64 and only increased by 0.5 percentage points among adults 65 and older.

However, a perfect storm of rising interest rates, high home prices and tight inventory has now culminated in a challenging situation for potential homebuyers, especially younger individuals who lacked the savings or equity from a previous property sale to support a home purchase. Despite the slower growth, 63% of millennials and Gen Zers indicated that they are ready and eager to become homeowners. 

Current challenges and barriers to homeownership for younger buyers

The current homebuying landscape poses challenges for prospective buyers of all ages. A high cost of living combined with job instability or low incomes of adults at the beginning of their careers make today's affordability challenges especially difficult for young prospective buyers. Almost 40% of Gen Z said uncertainty about being able to afford a home is one of their top financial concerns, according to research from Ernst & Young Global Limited.

Additionally, today's first-time buyers, especially younger millennials, often face significant debt burdens, including student loans. High rent costs leave some prospective buyers with little room to save for a home. According to the National Association of Realtors Profile of Home Buyers and Sellers, about 38% of recent first-time homebuyers said saving for a downpayment was the most difficult step in the process. To overcome this hurdle, younger buyers are turning to alternative sources, such as gifted funds, to help with down payments.

These challenges are contributing to a shift in the traditional perspective of homeownership as a critical factor of wealth-building among young adults. In a recent study, 1 in 3 Gen Zers said they weren't sure that owning a home was the best way for them to build generational wealth.

Understanding Millennial and Gen Z homebuyers

The needs, preferences and tendencies of millennial and Gen Z homebuyers differ not only from previous generations but also from each other.

• Technology use: Younger buyers turn to modern sources for financial advice, relying heavily on Instagram, YouTube and TikTok to educate themselves on homeownership and financial planning. According to a Google/Ipsos poll, 80% of Gen Z teens say YouTube has helped them become more knowledgeable about a topic. This highlights the importance of lenders using digital channels to reach and inform these prospective buyers.
• Loyalty: Around 40% of Gen Z and millennial borrowers with thin credit profiles return to the same type of bank or credit union they used for previous transactions — such as car loans — when seeking new financial products. This indicates a strong sense of brand loyalty that shapes their financial decisions.

• Preferences and needs. Young prospective homeowners have varying homebuying priorities. For example, according to the NAR, millennials tend to desire walkable city living, valuing proximity to urban amenities over spacious homes. On the other hand, Gen Z is increasingly purchasing homes in more affordable, growing areas outside of cities. Also, there's a strong trend among younger buyers toward homes accommodating remote work and social activities, with open floor plans becoming more desirable.
• Smart homes and sustainability are key. For generations raised on the internet, smart-home technology is a must. According to a recent survey by RE/MAX, 78% of Gen Z buyers are more interested in smart features than older cohorts. Tech tools can also help create an efficient and healthy environment, which can be attractive to younger buyers concerned with the long-term impact of climate change. According to the Building Performance Association, 73% of Gen Z buyers and 68% of millennials will opt to splurge on sustainable building materials. 

How lenders can engage young homebuyers

Lenders must not only understand the unique challenges, needs and desires of today's younger homebuyers but also adapt to them and align services with the priorities and tendencies of this generation of borrowers.

• Digital platforms: Again, younger adults rely heavily on technology for information and daily activities, making digital channels essential in homebuying. Lenders should stay updated on technology trends and use digital platforms to reach and inform potential buyers.
• Education and resources: Although millennials and Gen Zers are considered financially knowledgeable, many still hold misconceptions about mortgages. For example, in a recent study, 47% of Gen Z respondents — and an even greater share of millennials — believe that a 20% down payment is required to buy a home. Lenders can address these gaps by offering clear, accessible guidance on loan options, down payment assistance and homebuying resources.
• Company transparency: Studies show younger generations are less likely to seek advice from traditional financial institutions, and a significant portion of Gen Zers and millennials distrust housing market professionals. Gen Z, in particular, expects companies they work with to be honest, authentic and relatable and to practice what they preach. Lenders can build trust by providing transparent, user-friendly tools and information.
• Innovative offerings: Unique products, incentives and processes — for example, shared equity programs, down payment assistance and student loan relief — can be particularly appealing to younger buyers. Offerings that address their specific challenges and preferences can help turn today's sidelined homebuyers into tomorrow's homeowners.