Just when the real estate industry has adjusted to the preferences of millennials, here comes a new generation of potential customers dubbed Gen Z. While the oldest member of the Gen Z generation is only 24, this upcoming cohort appears poised for homeownership and wants to achieve that goal as soon as possible. That is, if they can find an affordable house that suits them.

“A big shift with this generation is that they use video far more than anything else when they’re searching for information online.” –Tim Costello, CEO of Builder Homesite, Inc.

Two pieces of good news for real estate agents: a survey of Gen Z-ers by Homes.com found that 86% want to own a home and just 5% said they don’t want to own a home at all. Even better, a recent survey of Gen Z-ers by Freddie Mac found that 79% prefer conducting the homebuying process face-to-face with professionals rather than via an app.

“We generally make expectations of younger generations as if they’re very different from previous generations,” says George Ratiu, senior economist with Realtor.com. “We thought the millennials were all about renting a 300-square-foot studio, using Uber instead of buying a car and Rent the Runway instead of buying clothes. But now that millennials are getting towards 40 and they’re forming families, they’re the ones taking out almost half of all mortgages, and they’re buying homes in the suburbs. We should expect the same of Gen Z when they’re older, too.”

Since most members of the Gen Z generation are just now graduating from college, they currently represent only 2% of mortgage originations, says Ratiu.

On the other hand, at even this young age, Gen Z-ers in several surveys have strong opinions about the value of homeownership.

HOMEOWNERSHIP ASPIRATIONS

A recent Bank of America survey found that 59% of Gen Z-ers want to buy a home within the next five years and another 33% plan to buy within six years, which would mean they would become homeowners before turning 30.

“The most surprising thing we found in our survey is how many young people expect to buy at an early age,” says Dave Mele, president of Homes.com. “This will be a large age cohort, even bigger than the millennials, so Realtors® need to be thinking about how to help them overcome their concerns about being able to afford the monthly payments, save for a down payment and pay off their student loans.”

The Homes.com survey found that 82% of Gen Z-ers want to buy because they want a place to call their own and 50% see owning a home as a good investment. In Bank of America’s survey, the reasons the youngest generation of buyers want to own include starting a family (55%), building wealth over time (47%) and making their family proud (33%).

VALUE OF REAL ESTATE AGENT

Since Gen Z buyers currently represent such a small part of the market, they were not a separate category in the National Association of Realtors®’ 2019 Home Buyer and Seller Generational Trends report.

“We did break out a younger millennials category, ages 21 to 28, who have doubled in size to 11 percent of homebuyers in the last couple of years,” says Jessica Lautz, vice president for demographics and behavioral insights for NAR. “One of the interesting things about this group is that they want ‘bricks not clicks’ when it comes to shopping, which speaks to their desire for help from an agent rather than doing everything online.”

NAR’s survey found that the youngest buyers are using an agent at the highest rate among all generations.

“They want an agent to walk them through the entire process,” says Lautz. “They’re relying on referrals at higher rates than other generations and want someone they trust to help them.”

Tips for Agents Working with Gen Z • Be tech-savvy. This generation has grown up with smart phones. Your website should be optimized for mobile devices and you should be making quick videos for properties and to share information. • Be quick to respond. Instant responses are a given in the Gen Z world. • Be collaborative. Gen Z-ers are likely to have done a lot of research, but they also want your input on the market and neighborhoods. • Locate affordable housing options. A townhouse or condo in a desirable location may overcome the desire for a single-family home. • Set expectations. This generation grew up with HGTV and expect all homes to meet TV standards.

Gen Z-ers are a completely digital native generation, says Mele, but 90% plan to work with a real estate agent because they don’t want to go through the homebuying process alone.

To reach the next generation of buyers, Kathy Cummings, senior vice president of homeownership solutions for Bank of America, recommends holding an information session at a local brewery or someplace where Gen Z-ers would be likely to gather.

“It’s important to have a visual presentation that shows them the average rent in your market with a photo of a house that they could buy with a similar monthly payment,” says Cummings. “They need to understand the value of a fixed-rate mortgage so they wouldn’t have to worry about their rent going up again.”

Realtors® should anticipate working with young buyers’ parents, too.

“Younger buyers often get financial help and advice from their parents,” says Lautz. “Anecdotally, I’ve been hearing that some parents call their children’s agents to tell them to show them a home in a particular neighborhood or to provide input even if they’re not helping financially.”

MISCONCEPTIONS ABOUT BUYING

While aspirations for homeownership are high, there’s still an issue of misinformation that may slow the Gen Z generation’s entrance into the housing market.

“Like other generations, Gen Z-ers think the biggest barrier to buying is saving for a down payment and closing costs,” says Cummings. “While saving is good, they need to know that they may not need as much cash as they think they do. They need to be educated that they can buy with as little as 3% down and about the availability of down payment assistance and closing costs.”

The median down payment for first-time homebuyers was 6% in 2019, according to NAR.

Another misconception is that student loan debt will automatically disqualify buyers from a mortgage, says Cummings.

“Buyers need to understand that student loan debt can be OK and that they don’t need perfect credit to get a loan approval,” she says. FINANCIAL PREP

Bank of America’s survey found that more than half (52%) of Gen Z-ers are already saving to buy a home.

“We asked prospective Gen Z homebuyers about how they would spend $5,000, and we saw a real shift in values,” says Cummings. “The majority chose to save it for a down payment.”

For example, 80% said they would save the money for a down payment, while 20% said they would use it to plan their dream wedding; 76% said they would save it for a down payment versus 24% using it to go on a shopping spree. And, while travel and experiences are often a priority for young people, 71% said they would save it for a down payment versus 29% using it to take a vacation.

“Realtors® are the front line for educating renters about how to overcome hurdles such as student loan debt and how to find programs that can help them finance a home." - Jessica Lautz

Gen Z-ers appear to be committed to preparing to buy a home, with 94% saying they’re willing to make sacrifices to buy, according to Bank of America.

“More Gen Z-ers than any other generation said they would be willing to get a second job to be able to buy a house,” says Cummings.

In addition, the survey found that in order to buy a home, 51% would cut back on extracurricular activities, 34% would attend a university that will leave them with less student loan debt, 32% would move in with their parents or in- laws and 32% would buy a home that doesn’t meet their wish list.

Sixty-one percent of Gen Z-ers expect to receive financial help to buy their first home, either from their parents or from a homeownership program, according to Bank of America’s survey. More than half expect to pay their parents back for their financial aid.

Agents can share resources for homeownership assistance from places such as downpaymentresource.com or mortgage.bankofamerica.com/ mortgage-down-payment-center, which can be searched by state. Bank of America offers up to $7,500 in closing cost assistance and up to $10,000 in down payment grants to qualified applicants, Cummings says. Other financial institutions offer similar programs.

PRIORITIES FOR HOME PURCHASE

Affordability is the top priority for young buyers, says Lautz.

“We hear all the time about how city centers are popular, but about half of young buyers are purchasing in the suburbs because of affordability issues,” says Lautz. “Many of them are also skipping that entry-level purchase and going directly to a detached single- family home. Our survey found that most first-time buyers are putting down roots and think they’ll stay in their home for 10 years or longer.”

Ratiu thinks we’re entering an era of the renaissance of the suburbs, in part because of the desire of young people for an affordable place to buy.

“We’re seeing the development of higher density and mixed-use developments that meet the definition of ‘surban’ or ‘hipsturbia’ – places that offer walkability and amenities like restaurants, shops and nightlife in a suburban environment,” says Ratiu. “Places like Tysons Corner, Reston, anything else when they’re searching Alexandria and new developments in Prince William County offer this kind of development.”

When looking for a place to buy, the top three most important attributes are a low crime rate, proximity to friends and family and a location near their work, according to the Freddie Mac survey.

“While there’s a perception that young people want to be in an urban environment, 71% said that proximity to work and to friends and family was their priority and only 11% said their priority was to be near nightlife,” says Mele.

Gen Z-ers overwhelmingly prefer a single-family home, Homes.com found, with just 7% planning to buy a townhouse and 4% planning to buy a condo.

“The HGTV effect is definitely part of this generation’s expectations, with a backyard entertainment area and an open concept floor plan topping the preferred features for their future home,” says Mele.

PREPARING TO WORK WITH THE NEXT GENERATION

Generation Z is the first generation to do everything online for their entire lives, which means they have more extreme expectations for their technology, says Tim Costello, founder and CEO of Builder Homesite and BDX, owner of NewHomeSource.com and HomLuv.com.

“A big shift with this generation is that they use video far more than anything else when they’re searching for information online,” says Costello. “They use YouTube as a search engine, and they use their voices. They want to ask a question on their phone and watch a 30-second video to get an answer.”

Realtors® can add value to younger buyers through their market knowledge and negotiating skills, says Costello, especially if they see their role as to save time, provide counseling and save money through negotiating.

“The best thing agents can do is to make a good 30-second or 90-second video that’s worthy of sharing with friends,” says Costello. “A good Instagram post is important, too. Agents need to speak the language of younger buyers.”

The biggest challenges for young buyers in Northern Virginia, as well  as many other parts of the country, are affordability and lack of inventory. While the majority of young buyers want a single-family home, agents can show buyers townhouses that may meet their needs and identify communities with a more affordable price point, says Cummings.

“Realtors® are the front line for educating renters about how to overcome hurdles such as student loan debt and how to find programs that can help them finance a home,” says Lautz.

Understanding potential roadblocks before connecting with Gen-Z buyers can help Realtors® build relationships with these prospective clients.





Michele Lerner, a freelance writer based in the Washington, D.C. area, has been writing about real estate and personal finance for more than 20 years.