Gen Z And Young Millennials Surge In Mortgage Market Amid Rising Homebuying Challenges

Despite challenging economic conditions marked by soaring home prices and tightening credit, nearly 40% of all U.S. mortgages in 2023 were secured by Gen Zers and young millennials, according to data issued by Redfin on Monday.

The group’s entry into the market has the potential to shape real estate trends, with these new buyers stepping up as key players even as overall affordability wanes. However, issues persist.

While the lion's share of mortgages last year went to individuals under 35, the overall number of home purchases has declined as housing costs have surged to record highs, with a nearly 20% drop in new mortgages across all age groups, according to the National Association of Realtors (NAR).

The trend is exacerbated by older homeowners holding onto low mortgage rates, further straining the limited housing supply.

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The impact, according to Redfin, is particularly evident in regions like Pittsburgh, Pennsylvania, and the San Francisco Bay Area where younger and older Millennials, respectively, are taking on more mortgages than any other demographic.

However, while Gen Zers and young millennials are increasingly becoming homeowners, data issued by the NAR in March indicates that challenges remain, with first-time buyers accounting for 32% of all purchases, still below the historical norm of 40%.

High home prices, elevated mortgage rates, and a persistently low inventory are putting homeownership out of reach for many aspiring first-time buyers, Jessica Lautz of the NAR testified to Congress in March.

"First-time homebuyers continue to struggle to enter the housing market, lacking the housing equity that boosts the purchasing power of repeat buyers," Lautz said to the House Committee on Financial Services Subcommittee on Housing and Insurance.

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The decline is attributed to rising costs, and to a market structure that increasingly favors those with existing home equity — a resource that younger generations lack. The median age of first-time buyers has risen, and with it, the financial requirements for entering the market.

Over the past year, a typical first-time buyer needed approximately $25,000 more in household income to afford a home, according to the NAR.

From 2020 to 2024, the price of existing homes surged by nearly 36%, compared to a 23% increase in household incomes. The disparity is squeezing out many potential buyers, particularly younger ones who are already challenged by less accumulated wealth and the repercussions of higher mortgage rates — now above 6%, higher than the rates below 3% seen just a few years ago.

The impact of the financial pressures is evident in increased monthly payments, less saving potential, and heightened entry barriers to the market.

For those who can still afford to buy, the path to homeownership is lined with bidding wars due to the ongoing inventory shortage. In January, the typical home seller received multiple offers, the NAR said, with 16% of homes selling for more than the listed price — an indication of a market where demand far outstrips supply.

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