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Homeownership has been long considered the first step to building wealth – but the country’s youngest adults no longer appear convinced.
Compared to all homebuyers, Gen Z is less likely to see a home as a good financial investment and views a home as a better investment than stocks, a June survey from the National Association of Realtors found. And they’re 20 percent more likely to say houses aren’t good investments.
That sentiment isn’t limited to the United States.London-based, The Investment Association, found that 20 percent of British Gen Z adults say investing is their most important financial priority – not buying a home, an August study revealed.
What’s caused the paradigm shift?
It’s a two-part answer, experts say: Investing is easier than it’s ever been and the cost of buying and owning a home is bordering on prohibitive.
Why Gen Z is investing
“Older generations generally entered investing through institutions—an employer retirement plan, a financial adviser, a bank, a broker, or a mutual-fund company,” Scott Beaulier, a professor of economics at the University of Wyoming, told The Independent in an email.
“Gen Z often enters through a phone, which means they have more information, more choices, lower transaction costs and greater control.”
Companies such as Robinhood offer investing through easy-to-use apps that have investors up and running after a quick sign-up process.
There is also a wealth of reputable investing information out there that previous generations didn’t have access to, Beaulier said.
“A young investor can learn more about markets in an afternoon than I could have learned in weeks when I was their age,” he said.
Historic home costs
With so much access and information available, it’s easy to see why Gen Z might look elsewhere for wealth building if buying a home presents too many hurdles. And, right now, those hurdles are numerous.
For example, the average sale price of a home in December 2019 was $384,600, according to the Federal Reserve.
After low interest rates led to a housing boom during the pandemic, the average home price had soared to $525,100 by June 2022. It was the biggest three-year rise in home prices since the Fed started tracking them in 1963.
Mortgage rates over the past four years are at levels the country hasn’t seen in more than 20 years, according to data from Freddie Mac’s Primary Mortgage Market Survey.
The average rate on a 30-year fixed home loan, the most popular kind of mortgage, was 2.65 percent in January 2021.
Today that rate is 6.66 percent, costing new homeowners hundreds of dollars in extra interest payments each month compared to pandemic buyers.
With prices and interest rates stacked against them, Gen Z’s wealth ladder no longer looks the same as it did for previous generations, Beaulier said.
“For previous generations, buying a starter home was one of the default first steps toward building wealth,” he said. “Today’s young adults look at home prices, mortgage rates and the size of the required down payment and realize the first rung of that ladder is much higher.”
Investing has filled that gap.
“You may not have $60,000 for a down payment, but you can put $200 into an index fund this month,” Beaulier said.
The home-buying dream isn’t dead, just delayed
Has Gen Z abandoned their dream of homeownership? No – that’s a misconception, Hana Ben-Shabat, founder of research and resource platform Gen Z Planet, wrote in an email to The Independent.
“Gen Z never gave up their interest in homeownership. However, faced with high housing costs, the goal of homeownership feels out of reach while investing is accessible immediately,” she said.
“Most Gen Z view investments as a practical way to build wealth while aspiring to own a home one day.”
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