As reported by Fortune, we are in an era where the housing market is more competitive than ever. The millennial generation, now at its prime homebuying age, is making waves that are felt across generations, particularly impacting Gen Z.
As the largest generation in U.S. history, millennials are not just stepping into the housing market; they are storming it with unprecedented force. This surge in demand, coupled with a significant shortage of available homes, is creating a ripple effect reshaping the homeownership landscape.
While millennials eagerly seize opportunities to plant their roots, their actions inadvertently set the stage for a challenging scenario for the upcoming generation, Gen Z.
This dynamic interplay between millennials and Gen Z in the housing market is more than a mere economic trend; it’s a generational clash with far-reaching implications.
As millennials continue to dominate home purchases, accounting for around 60% of homes bought with mortgages, the question arises: What does this mean for Gen Z, who are just beginning to enter the market?
Here are 6 things you need to know about this concerning trend.
1. Millennials Driving Housing Demand
The millennial generation, recognized as the largest in U.S. history, is currently at the peak of its homebuying years. This demographic shift is creating a substantial impact on the housing market. Despite facing challenges with affordability, the demand driven by millennials is not expected to wane anytime soon.
Their entry into the housing market in large numbers, coupled with an increase in household formations, is projected to sustain a robust housing market well into the end of this decade. This surge in demand from millennials is reshaping the housing landscape, keeping the market active despite various economic pressures.
2. Millennials Comprise Largest Share of Homebuyers
Millennials have now taken the lead in the homebuying market, accounting for approximately 60% of homes purchased with mortgages in recent years. This dominance in the market underscores the significant role millennials play in driving sales activity and maintaining the momentum of the housing market. Their active participation is a key factor in the ongoing vibrancy and resilience of the real estate sector, influencing trends and market dynamics.
3. Supply Shortage Keeping Prices High
The current housing market is characterized by a severe shortage of available homes, estimated to be around 2.1 million units short. This deficit, largely a result of limited new home construction following the 2008 financial crisis, is a major factor in keeping home prices high. The scarcity of available properties is exacerbating the challenge for potential homebuyers, particularly for younger generations like Gen Z, who are finding themselves priced out of the market.
4. Lock-in Effect on Housing Supply
A significant number of homeowners, having secured mortgages at historically low rates in recent years, are reluctant to sell their properties and lose these favorable rates. This phenomenon, known as the ‘lock-in effect,’ is further tightening the already constrained housing supply. As a result, the market remains underbuilt, with fewer homes available for new buyers, contributing to the sustained elevation of home prices.
5. Older Generations Still Dominate Homeownership
Despite the rising prominence of millennials in the housing market, older generations, particularly those over 65, continue to dominate homeownership. This demographic is less affected by higher mortgage rates and holds a substantial portion of the housing wealth. Their continued presence in the market underscores the generational disparities in homeownership and wealth accumulation.
6. Millennials’ Impact on Housing Market Stability
The housing market’s stability in recent times can be partly attributed to the millennial generation. Their growing demand for homes, fueled by their life stage and increasing household formations, plays a critical role in the supply and demand dynamics of the market. This demand is not only sustaining the market but also shaping its future trajectory, influencing everything from home prices to construction trends.