Beyond Millennials: Generation Z Buyers Are Poised to Upend the Housing Market

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Real estate agent Benjamin Ulloa may have been one of the first home buyers of his generation. Two years ago, at age 17, he used his savings and a $9,000 loan from his parents to buy a three-bedroom fixer-upper in Hoquiam, WA, for $18,000. The young investor made some repairs and has been renting it out ever since.

“I’m OK with buying fixer-uppers, because I have the means to fix them up,” says Ulloa, who wanted to start building equity early and quickly. “I’m looking for the diamond in the rough that I can then turn into a beauty.” 

Feeling old yet?

While Ulloa may be ahead of the curve, his attitude is pretty typical of Generation Z, the cohort of 65 million to 75 million young people who are expected to start buying homes en masse within five to 10 years, demographers say. (The Pew Research Institute defines Generation Z as those born in 1997 and beyond.) Following hot on the heels of millennials—currently the largest group of home buyers—these upcoming bargain-hunting, tech-loving, and real estate–savvy buyers are expected to be a force to be reckoned with as they compete for smaller, more affordable abodes in what may still be a tight housing market, real estate experts say.

Members of Generation Z (the oldest of whom are in their early 20s) seem to be shaping up as more financially-savvy and risk-averse than millennials and Gen Xers, demographic experts say. More than a tenth of them are already saving for retirement, and they’re choosing less expensive colleges so they don’t wind up burdened with student debt—and therefore are more likely than their predecessors to be able to pony up a down payment.

“They grew up in the wake of the Great Recession. They saw what their parents went through and became more fiscally conservative as a result,” says Chris Porter, chief demographer at John Burns Real Estate Consulting. “They know the value of saving and not living beyond their means. It was something ingrained in them at a very young age.”

What kinds of homes—and where—is Generation Z likely to buy?

Future sellers may want to take note that these buyers aren’t as likely to seek out big, expensive homes. With U.S. birthrates falling, demographers believe that members of Gen Z will continue the trend toward having smaller families, than, say, baby boomers. Instead, they’re expected to buy more affordable, smaller homes. That’s bad news for today’s owners of McMansions, who may struggle to unload them down the line.

Nor are Gen Z members likely to buy at the top of the market and risk losing out on a deal—or worse, find themselves underwater if the market changes, say experts. All indications are that they’ve learned from their predecessors’ mistakes.

“They’re not going to stretch to buy a house they can’t afford, because that goes against everything they’ve done up until this point,” says Jason Dorsey, president of the Austin, TX–based Center for Generational Kinetics. “They’re going to be very worried about buying a home that might go down in value.”

Gen Z also may not shy away from fixer-uppers, a boon to sellers who don’t want to put too much work into their properties.

“With the popularity of HGTV and DIY videos on YouTube, there’s more of a willingness from this generation to take on some of these projects,” Porter says. “They may be open to take a home that needs fixing up if they can get it at the right price.”

Like nearly every generation that came before, members of Gen Z are likely to head to the cities—at least initially. Competition for housing in desirable urban markets may start boiling over as a result. But they’ll probably move out to the suburbs when they begin to have families, just like the generations before them did.

However, if they can work remotely and have some of the amenities of big-city living without actually being there—such as Whole Foods deliveries even if they’re nowhere near a store—they may choose to live farther out in cheaper suburbs or more rural areas. That could give these housing markets a bit of a boost.

“They’re going to want the most efficient use of their money, so we think a smaller home closer to everything they want” will be key, says Dorsey.

Importance of new technology and social media

Moreover, Gen Z is expected to push the digital envelope even more than millennials—particularly when it comes to choosing a home to live in, according to a recent report from management consulting firm Accenture.

“Our research shows that social media has a significantly greater impact on Gen Z shopper purchasing behaviors,” according to the report. “This younger generation are expressing a greater willingness to buy products and services via those channels.”

Gen Z buyers and renters are also likely to tap into social media for guidance on where to live. Some may even prefer to tour homes using virtual reality rather than inspecting properties in person, the report says.

In addition to using social media as a buying tool, Gen Zers are likely to have a higher expectation for technology to be integrated in the home itself. Today’s homeowners may want to consider this when they make upgrades as they prepare to put their homes on the market over the next few years.

“What we consider a smart home today, that’s going to be old news to Generation Z,” says Dorsey, explaining that these buyers are going to want homes to function as one, unified system, rather than separate sprinkler, heating and cooling, and entertainment systems.

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Source: Housing Trends Feed