High Home Prices are Holding Back Young Homebuyers

The dream of owning a home remains a quintessential part of the American dream. However, for many young individuals, especially millennials and Gen Z, the dream seems increasingly out of reach due to soaring home prices. The real estate landscape has transformed dramatically over the past few years, with high home prices emerging as a significant barrier to entry for young homebuyers.

Recent Home Price Growth

The statistics paint a stark picture of the rapid escalation in home prices. According to CNBC, the median existing home price surged from $270,100 in February 2020 to $363,000 in February 2023, marking a staggering 34% increase in just three years. Moreover, the expected cost of new homes hit $425,800 in 2023, rendering them unaffordable for almost 75% of American households, as reported by Norada Real Estate Investments.

Impact on Younger Generations

The repercussions of exorbitant home prices are particularly pronounced among younger generations. The combined share of millennial homebuyers plummeted from 43% in 2021 to 28% in 2022, according to Norada Real Estate Investments.

Furthermore, a substantial portion of respondents, 69% across generations, deferred home purchases in 2023, with high prices ranking as the second most common reason after rising interest rates. Among Gen Z individuals under 30, 70% opted to delay their purchases.

Additional Factors

Several other factors exacerbate the challenge for young homebuyers. The burden of significant student loan debt diminishes their buying power, while stagnant wage growth fails to keep pace with escalating housing prices. Moreover, the inventory shortage exacerbates the situation, fueling bidding wars and further driving up prices.

Affordability

To address the affordability crisis, prospective homebuyers must conduct thorough research. While median home prices provide a snapshot, delving deeper into the median prices of smaller homes or condos offers a more nuanced perspective. Comparing median home prices to median household income in specific areas helps gauge affordability levels, with the aim of ensuring housing costs do not exceed 30% of income.

Younger homebuyers have faced a bevy of challenges that prevent them from entering the housing market, said BankRate senior economic analyst Mark Hamrick.

Rising costs of higher education, job insecurity, less job experience and the added burden of retirement savings “have made it more difficult for younger people to establish a foothold with their personal finances,” he said.

Job Market and Lifestyle Considerations

Analyzing the job market and lifestyle factors is paramount in selecting the right area to purchase a home. Low unemployment rates signify job opportunities and stable income potential, while industries experiencing growth offer promising prospects. Lifestyle considerations encompass amenities, commute times, and access to essential services, catering to the preferences of young homebuyers.

Choosing the Right Area

When selecting a location, it’s crucial to consider various factors beyond the highest percentage of young buyers. Affordability, job market dynamics, and lifestyle amenities play pivotal roles in determining the suitability of an area for homeownership.

According to the Charlotte Observer, more than one in five Gen Zers own their homes in three large U.S. cities. They include:

• Stockton, California (22.7%)
• Albuquerque, New Mexico (21.7%)
• Phoenix, Arizona (21.0%)

Two cities in both Texas and Oklahoma rank in the top 10 cities for Gen Z homeownership. No cities in the Northeast nor the West made the top 10.

The highest-ranking Northeastern city is Pittsburgh, Pennsylvania (No. 23, and the highest-ranking Western city is Mesa, Arizona (No.11).

Pacific Northwest falls behind. Seattle, Washington; Portland, Oregon; and Oakland, California, all rank in the bottom five worst cities for Gen Z homeownership.

While the housing market’s dynamics may vary by location and economic conditions, the overarching trend underscores the formidable challenge posed by high home prices for young homebuyers. Aspiring homeowners must take on these challenges with diligence and strategic planning.

Embrace Home Loans for Young Homebuyers

For young homebuyers seeking guidance and support, Embrace Home Loans^® stands as a reliable resource. With highly experienced loan officers and pre-qualification assistance, Embrace Home Loans is committed to supporting young individuals at every step of their homebuying journey.

Understanding the complexities of the housing market may seem daunting, but with the right resources and guidance, young homebuyers can turn their homeownership dreams into reality.

Give your local Embrace office a call today.