'House hacking' and other Gen Z trends in homeownership

May 28, 2024 5:30 AM

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High interest rates and low inventory have plagued the housing market, making it particularly difficult for younger adults to enter the world of homeownership. In recent years, millennials have notoriously struggled with owning houses — has Gen Z learned from their struggles enough to create better paths to homeownership?

At the very least, they're keeping a positive attitude: Research from ServiceLink found that the younger generations had a more optimistic view of the housing market in 2024, with 56% of Gen Zers and 51% of millennials believing that conditions for buying were favorable, compared with 38% of Gen X and 18% of baby boomers. However, the survey results were not all that positive when it came to the respondents' views on interest rates: Forty-two percent of those who considered buying a home in the past 12 months gave up the quest.

It's all driving new trends in housing, especially among the youngest working generation. Gen Z is finding creative solutions to alleviate housing costs, with recent college graduates moving back home with their parents at a higher rate, as well as using "house hacking," or renting out part of your property to afford housing costs.

"Housing is very costly. People are definitely more open to sharing space," Danny Gardner, Freddie Mac's senior vice president of mission and community engagement, recently told National Mortgage News.

Some loan officers, including John Birke of Movement Mortgage, have developed marketing aimed at tapping into this interest on TikTok, a social media channel the industry has increasingly been experimenting with as a way to reach younger generations.

"I've done several videos about house hacking. I think it's going to become more and more popular in the future," Birke said. "Both Gen Z and millennials are frustrated that they've been essentially shut out of the housing market with few options for buying a home."

Gen Z may also have more pressing financial concerns to balance such as erasing debt, especially from student loans, according to a FinLocker survey last year. While mortgage lenders are seeking to court young homebuyers with attractive marketing, the appeal of rental income is undeniable.

There are, however, a few trends working in Gen Z's favor. The flexibility of remote work, which Gen Z has benefited from for much of their adult life, gives younger adults the opportunity to buy homes in more affordable areas while still working jobs in expensive, urban areas.

Many Gen Z homeowners likely purchased during the ultra-low rate era of 2020 and 2021, data from Redfin suggests. Their advantageous window compares favorably to Millennials, who in their early 20s lived through the Great Recession, and Gen Xers, who faced mortgage rates around 11% in 1989, when the oldest of that cohort were 24 years old.

Read more about recent Gen Z housing trends below.

Sad young woman depressed sitting at home on the couch

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Young adults are moving in with their parents to save money

Approximately 46% of parents said they had "boomerang" adult-age children who had returned home to live with them at some point, according to research from financial services firm Thrivent. Half of that share attributed the trend to the surging costs of homes and rent, with that particular sentiment increasing by 15 percentage points from just a year earlier.

"This is a wakeup call that's gone unanswered," said Chaz Black, Thrivent financial advisor, in a press release. "More young adults returning home underscores the enormous — and growing — financial pressures they're facing after graduation."

The data indicates that the pressure is also rippling across to their parents. As children moved back in, 38% of their parents said they were struggling to pay off their own debts, with the share increasing from 23% a year ago. Close to 37% found it difficult to save for their long-term housing and retirement goals; the sentiment more than doubled from 16% in 2023.

Read more:

Gen Z adults moving in with parents due to high housing costs

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Gen Z shows loyalty in lending

Young consumers show a tendency to stay loyal to lenders, according to a study from Transunion and Open Lending, a risk data and analytics provider serving the auto loan sector. A review of Generation Z and millennial borrowers points to opportunities for lenders to create lasting customers as younger demographics expand their credit files and eventually seek out other loans, including mortgages.

"Many financial institutions are hesitant to extend loans to borrowers with thinner credit files and lower credit scores, who are often millennials and Gen Zers," Kevin Filan, senior vice president of marketing at Open Lending, said in a press release. "However, this strategic consumer segment shows immense potential for upward credit mobility compared to their older counterparts."

The research determined that approximately 40% of thin-file Gen Z and millennial borrowers returned to the same type of bank or credit union they used to take out a car loan for future borrowing.

Read more:

Gen Z borrowers are loyal to their lender: report

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Gen Z is willing to pay higher interest rates

A majority of Gen Z (63%) said they planned to purchase a residence in 2024, according to a ServiceLink survey, indicating that young Americans are interested in homeownership even more so than millennials.

"This is an interesting and pivotal moment in the housing and mortgage industries as the younger generations are not only determined to buy but are seemingly undeterred by the higher price tags and interest rates," Dave Steinmetz, president of origination services at ServiceLink, said in a press release. "Our study suggests that Gen Z and millennials are poised to impact the market in several ways including purchase, refi and home equity, which is an opportunity for lenders to educate and usher these younger buyers through the process."

Gen Z members who are current homeowners and have an average interest rate of 5.4% would consider going as high as 6.3% in 2024, the survey found. This is compared with millennials, who, with an average interest rate of 5.2% would be willing to go 100 basis points higher at 6.2%; Gen X, current average 5%, who would consider 5.8%; and baby boomers, with a current interest rate of 4.6%, have the least tolerance to pay higher, just 0.4 percentage points at 5%.

Read more:

Gen Z home buyers willing to pay higher interest rates, survey finds

Close up hand of home agents are handing out keys to new home buyers.

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Gen Z outpacing previous generations on homeownership

Just 26.3% of Gen Zers, or those born between 1997 to 2012, owned a home last year, according to a study from Redfin. That rate ticked up by 0.1% annually, a growth lagging behind millennials, of which 54.8% owned a home last year, and Gen Xers, of which 72% owned a home.

Gen Zers are still outpacing their parents and grandparents in one respect, however: 27.8% of 24-year-old Gen Zers own a home, compared to 24.5% of Millennials when they were that age, and 23.5% of Gen Xers at the same level of maturity. The brokerage cited historic U.S. Census Bureau homeownership data as the basis for its findings.

Young buyers have more remote work opportunities than previous generations, allowing them to choose affordability over expensive urban markets, Redfin Chief Economist Daryl Fairweather said in the report. "The recent decline in rents means Gen Zers can put more money toward saving for a down payment," Fairweather added.

Read more:

Gen Z has a housing advantage over parents in one respect

Manhattan Rents Soar To A Record With Landlords In Driver's Seat

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How Gen Z is using ‘house hacking’ to their advantage

A majority of home buyers in younger generations are interested in "house hacking," or buying a house and renting out part of it and using the rental income to make financed home purchases more affordable, according to a recent survey from Zillow,

Some seeking to increase affordability by sharing space opt for multigenerational living spaces, but for others, it leads to an owner-occupied rental strategy.

"We mostly suggest to first-time homebuyers — young professionals in their 20s and early 30s with a solid salary and a good job — instead of purchasing a typical single-family home, why not get into a duplex where you can live on one side and rent out the other," Filippo Incorvaia, founder and broker at FI Real Estate, told National Mortgage News's Bonnie Sinnock.

Read more:

Can 'house hacking' help Gen Z afford homeownership?