Gen Z's share of the mortgage market is about to quadruple

Within five years, Gen Zers should make up almost one-quarter of mortgage holders, nearly reaching the level of millennials and Gen Xers, research from Boston Consulting Group found.

The data is included in BCG's third quarter Mortgage Performance Report, at the end of the earnings cycle.

"By better understanding Gen Z's timeline to home ownership, companies can position themselves as trusted advisors early in the process," the report said. More than 40% of this group plans to buy a home in the next one-to-three years, a June study from Insurify found.

Past studies have noted Gen Z is willing to use nontraditional methods to acquire a home, including buying with friends.

Right now, the older portion of Gen Z, which Pew Research Group considers to be those born between 1997 and 2012, is on the fringes of the home ownership demographic. For 2024, they make up 6% of the market.

The largest share of mortgagors, at 34%, are millennials, who were born between 1981 and 1996. Gen X, born between 1965 and 1980, are just 27% of the market, trailing the baby boomers, the second largest current cohort at 31%.

But by 2028 this mix changes, with millennials and Gen X each accounting for 28% of home purchasers and Gen Z just behind at 24%. Baby boomers will still be a significant presence at 20%.

But Gen Zers are not just purchase candidates for lenders. The BCG report uses Freddie Mac data on active loans produced since 1990. It found that the average mortgage interest rate for Gen Z borrowers at origination was 4.9%. This compared with 4% for millennials and Gen X, 4.1% for baby boomers and 4.3% for the silent generation.

That means nearly half of current Gen Z mortgagors have a rate over 5%. This was true for just 20% for millennials, 21% for Gen X and 22% for baby boomer borrowers. 

When it comes to marketing, Gen Z had very similar numbers to millennials for using word-of-month to share their views, especially positive ones. They are also more likely to criticize a brand than the older groups.

When asked if they recommend brands spontaneously, 42% of Gen Z and 40% of millennials did so; that grew to 56% and 54% who would do so when promoted.

But that was true for 20% and 28% respectively of baby boomers.

If anything, 59% of baby boomers would not make any recommendations or criticisms, compared with 22% of Gen Z.

"Gen Z is 2.75 times more likely than boomers to say recommendations from friends impact purchase decisions," the report noted.

This demographic has a strong desire for digital and self-serve tools, so open to non-traditional institutions like SoFi for financial services and advice, BCG continued. This matched previous studies, including one from Javelin in 2020.

Among the other implications for mortgage lenders, Implications for lenders is that this generation is going to be more likely to need cost reduction and financial assistance programs.

As a group, Gen Z values financial literacy and engagement with educational content, so lenders need to be ready.

In line with their willingness to share recommendations and criticisms, Gen Z expects brands to use social media as an avenue for authentic engagement and for sharing informative content. They also respond positively to brands with strong values.

Meanwhile, a growing number of Gen Z is currently serving or even have completed their terms in the U.S. military, making them eligible for Veterans Affairs-guaranteed home financing. For those who can participate in the program, the need to save for a down payment is reduced or even eliminated as it offers 100% loan-to-value ratio mortgages.

Down payment, as well as closing costs, have been cited among the main reasons potential buyers of all demographics are having issues buying a home. A recent study from Clever Real Estate noted that nearly half of Gen Z were surprised by the costs associated with a home purchase, topped by the millennials at 63%.

An analysis of VA data for federal fiscal year 2024, ended on Sept. 30, found the share of purchase mortgages that were originated to eligible Gen Z borrowers increased 22% year-over-year, the only demographic to experience annual growth for this product.

Gen Z veterans accounted for 12% of all VA purchase loans; when it comes to all loans the program guaranteed, the group accounted for a 9.2% share, up from 7.3% for fiscal year 2023.

"Generation Z veterans are ready to step into the spotlight and start making waves in the housing market, signaling a transformative impact in the years ahead," said Chris Birk, vice president of mortgage insight at Veterans United, in a press release. "Their significant uptick in VA loan utilization not only highlights their resilience but also underscores the enduring value of the VA loan benefit in helping younger veterans achieve the American dream of homeownership."