Solving The Gen Z Down Payment Challenge
January 27, 2023
The Gen Z Down Payment Challenge
Disposable income dropped to the lowest level ever except during the Great Depression in 1932.
In a further sign the homeownership affordability is getting worse, saving up for a down payment just got harder for the average family, especially the newest generation of home buyers, Gen Z. Disposable income, or “the amount of money that an individual or household has to spend or save after income taxes have been deducted” according to Investopedia, dropped to the second lowest level ever recorded according to the St. Lious Fed.
Disposable income is directly correlated to a buyer’s ability to save up for a down payment and closing costs. And as inflation far outpaces the average income, buyers are more challenged than ever to save. Someone might always pay their bills on time and have a small rainy day fund, but saving for a down payment is difficult.
While some Millennials are already buying their second homes, first-time Gen Z buyers face major challenges. After growing up under the shadow of the ‘08 crash, only to start their early careers in the midst of a global pandemic, these late entrants face an inflated housing market that is as competitive as it is fast-moving.
Despite all this, about 86% of this resilient generation want to own a home and 61% of them expect to buy their first home before the age of 30 according to a Homes.com survey conducted this year.
For many Gen Zers, saving for a downpayment is the major hurdle, especially while struggling with the rising cost of, well, everything, from food and housing, healthcare and transportation, to student loan debt and beyond.
Picture a typical young couple, with or without their first child and $75K in yearly income. While it’s true that they can structure their tax withholdings to get a return at the end of the year which might cover a downpayment, the harsh reality is that their saved money will not likely cover a downpayment that affords them a house that A) is big enough to serve their needs, or B) is in an ideal place to live long-term.
For those just starting their careers, the right home can be just out of reach.
No matter how hard-working a couple is, it doesn’t take much of an extra burden to yank them out of the running for a mortgage down payment. Factor in a job loss, a single financial emergency, or a medical event, and you can see how easy it is to ruin your chances. Some must support parents or other family members. Some have to send extra savings overseas or back home. For those who launched their careers during or after the crash of ‘08, lingering uncertainty creates a backdrop of anxiety that only underscores the burden of student loans, sky high rental costs, and now, a global health crisis.
There are plenty of qualified buyers out there who have good credit and great job history, but for one reason or the other, they still have trouble saving that one large lump sum. Otherwise, they’re just as ready and able as everyone else to make their monthly payments.
To complicate matters, housing markets are inflating, and price increases have historically far outpaced average incomes and savings. Even buyers with more options and greater savings are getting less house for their money. This especially impacts the lower income earners. When the affluent can make a larger down payment with ease, the market constricts even further.
How can we best help Gen Z? By providing a more transparent, mobile and automated home loan experience that increases accessibility and drives down the cost of credit and homeownership. Technology can destroy barriers between renters and owners, kickstarting wealth creation for everyone.
In our next article, we’ll dive deeper into disposable income and how to improve it so you can buy a home.
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