Important points
With home prices soaring and mortgage rates averaging almost 1 percentage point higher than their September lows, purchasing a single-family home is not easy for Gen Z. New research shows that many Gen Zers are working multiple jobs or moving to cheaper areas to achieve their homeownership goals. There’s no guarantee that home prices or mortgage rates will fall in 2025, so the path to homeownership could be just as difficult in the future.
Buying a single-family home is not easy these days. However, for Generation Z (18 to 27 years old as of 2024), especially those with limited income and little savings, this may not be easy in the future.
According to a report released in late October by InMyArea.com, Gen Z homeowners are using tactics like taking second jobs, moving to more affordable areas, and buying foreclosed homes. He says he has worked hard to get a house.
If you’ve looked at the recent housing market, it’s no surprise that Gen Z is having a hard time buying a home. In addition to rising home prices, mortgage rates are still rising, reaching an average of 6.88% for a 30-year fixed-rate mortgage as of Oct. 29, according to Zillow data provided to Investopedia. This is almost 1 percentage point higher than the September average of 5.89% before the Fed meeting.
If you’re a Gen Zer looking to buy a home, should you buy now or wait until interest rates come down? It depends on why you want a home, your financial and credit strength, and the year 2025. determined by the belief that mortgage rates will fall.
The average home price in the US is $359,892, but the average annual income is only $60,580
According to Zillow, the average home price in the United States was $359,892 as of September 2024, up 2.7% from the previous year. Additionally, the U.S.’s 120.8 million full-time wage earners had a median weekly income of $1,165 in the third quarter of 2024, according to the U.S. Bureau of Labor Statistics (BLS). Multiply by 52 weeks and your average annual salary is approximately $60,580.
With that annual income, it is not easy to buy an average house. After making a 20% down payment, the monthly principal and interest payments on a 30-year mortgage with an interest rate of 6.88% are $1,892. If your monthly income is only $5,048 (before taxes and deductions), that mortgage will eat up a significant portion of your money. For young people who are part of Generation Z, buying a home is even more difficult as median salaries can be even lower once they start their careers.
According to the BLS, the median weekly wage for workers ages 16 to 24 was $746 in the third quarter of 2024, or about $38,792 annually. Even older Gen Zers (ages 25 to 27) still fall short of the U.S. average salary, with an average annual income of just $57,564.
According to a study by InMyArea.com, about 25% of Gen Z adults own a home, despite their lower-than-average wages. How did they reach this milestone?
About one-third of Gen Zers surveyed said they worked multiple jobs to afford a home, and 22% said they moved to a more affordable area.
This last strategy makes sense. Buyers can save a significant amount of money if they move to a new state. As of September, the average home price in New Jersey was $535,982, according to Zillow. However, in West Virginia, the average home price is much lower at $167,571. As Gen Z expands their housing search from more expensive housing markets like New Jersey to more affordable housing markets like West Virginia, they may be able to afford a higher home purchase.
The study also found that 18% of Gen Z buyers received money from family members, 15% purchased a fixer-upper to reduce upfront costs, and 11% purchased the property from a friend or family member. . An additional 7% said they purchased a foreclosed property, a higher percentage than any other age group, and 8% received government subsidies or first-time homebuyer assistance programs. I am using it.
Despite the economic barriers to homeownership, 87% of Gen Zers told InMyArea.com that they agree that homeownership is part of the American Dream.
The study also found that young people are more willing to buy. A total of 32% of respondents aged 18 to 27 who do not yet own a home said they planned to buy a home within the next five years, and 38% said they planned to buy in more than five years. . Only 30% said they have no plans to buy a home or don’t know when they will.
Buy now or wait?
So, if you’re a member of Gen Z, should you buy a home now, or does it make more sense to wait until mortgage rates drop?
Darren Tooley, senior lending officer at Cornerstone Financial in Southfield, Michigan, said waiting for interest rates to drop could pay off for young homebuyers.
What is the challenge? No one can accurately predict what mortgage interest rates will be. This means younger buyers may be waiting a long time for interest rates to drop.
“Mortgage rates are widely expected to fall in the fourth quarter of this year and next year,” Tooley said, “and I believe they will. But rates can go up or down in a straight line. “It’s never going to happen. It might be a few days.” Or, if interest rates rise even in a market where rates are falling, it could take weeks or months. ”
But what if you want to buy a home now? Maybe your family is growing and you need more space. Maybe you’ve relocated to a new city for work and want to put down roots. Is it a bad decision to buy a home now that interest rates are high?
Not so, according to Tooley. The best time to buy a home is when it makes sense for you, no matter what interest rates are.
“I strongly believe that any time is a great time to buy a home,” Tooley said. “Purchasing a home is one of the best and safest investments a person can make, given the long-standing value of homes.”
Additionally, you can apply to refinance your mortgage at any time to lower your monthly payments and reduce the interest you pay over the life of your loan.
How to track your mortgage interest rate
The national and state averages listed above are based on the Zillow Mortgage API, assuming a loan-to-value (LTV) ratio of 80% (i.e., a down payment of at least 20%) and an applicant credit score of 80%. Provided as is via. Range 680-739. The resulting interest rate represents what a borrower should expect when receiving a quote from a lender based on their qualifications and may differ from the advertised teaser rate. © Zillow, Inc., 2024. Use is subject to the Zillow Terms of Use.
