As millennials reach prime homebuying age, complete with higher incomes and more stable financial outlooks, another generation is easing their way into the market and heating up the competition for affordably priced starter homes.
According to realtor.com’s latest Generational Propensity report released on Wednesday, the oldest Gen Zers are beginning to transition from renting to buying with their share of mortgage applications reaching 2 percent in Q4 2019.
“Gen Z is entering the housing market under the radar, but at a projected 65-million strong, they are going to begin making some major waves,” said realtor.com senior economist George Ratiu in a prepared statement. “However, as the young generation launches into homeownership, it is facing strong headwinds, including competition from millennials, many of whom are entering homeownership later in life, and a marketplace largely devoid of entry-level options.”
Both generations are battling for entry-level homes priced at $200,000 and below, a segment of the market that has been disproportionately impacted by inventory shortages. According to realtor.com’s December Monthly Trends Report, the inventory of starter homes declined 18.1 percent year-over-year from Q4 2018 to Q4 2019.
To remain competitive against millennials with slightly bigger budgets, Gen Zers are opening their purse strings in order to achieve their homeownership dreams. Over the past year, Gen Zers have increased their median purchase price 11 percent to $160,000.
In order to find homes within their price range, Gen Zers are flocking to secondary markets across the South and Midwest. Toledo, Ohio; Grand Rapids, Michigan.; and Wichita, Kansas were the top choices for this generation, followed by Virginia Beach, Virginia; Winston-Salem, North Carolina; and Scranton, Pennsylvania.
Meanwhile, millennials are more apt to keep expensive markets such as San Francisco, Boston and Denver on their lists of places to move, the report said.
The battle between millennials and Gen Zers will continue to intensify as both groups reach their prime homebuying years, meaning that homebuilders will need to ramp up production to meet demand.
“With major generational transitions taking place across a housing landscape clouded by lack of new construction and a shortage of inventory, young Americans’ preference for homeownership is a ray of sunshine,” Ratiu concluded.
“It stands in contrast to the rhetoric of the past decade, cataloging young people as the ‘renter generation,’ and provides ample evidence that a significant ramp-up in affordable new home building is needed to meet the growing demand.”
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