Some younger households giving up on homeownership, Redfin says

A significant portion of the millennial generation now believes they will not have the opportunity to be a homeowner, indicating that mortgage originators may need to provide more education as part of their marketing.

Affordability remains the big hang-up, a Redfin survey found. But it's not just millennials that are being impacted; besides the 18% of this cohort no longer thinks they will buy a house, 12% of the up-and-coming Gen Z, one already described as the largest and most diverse to enter the housing market, believe similarly.

First-time buyers already have a significant share of purchases this year, Zillow previously reported.

Breaking the list of affordability-related responses down further, high home prices, which have endured even as the U.S. economy has slowed, was the most cited reason why both groups felt this way.

A separate Redfin report issued on Thursday found that home prices gained 4.5% year-over-year for the four-week period ended Sept. 3.

As a result, the typical monthly mortgage payment of $2,612 is $18 below the all-time high set in May.

"If folks can figure out a way to buy instead of rent, they will," Redfin agent Niko Voutsinas said in the home price release. "Some buyers are cutting back on other expenses to up their housing budgets because they believe home prices are only going to increase."

Negative perceptions about their ability to save enough to make a down payment was cited by 46% of millennials and 33% of Gen Z. More than a third of both groups said mortgage rates are currently too high.

Meanwhile paying off student loan debt will take precedence for 21% of Gen Z and 16% of millennials over the purchase of a home, the survey found.

Of those survey participants that are planning to buy in the next 12 months, 36% of millennials and 41% of Gen Z members are working a second job in order to fund the down payment.

A cash gift from a family member is expected to help contribute to the down payment from 23% of millennials and 28% of Gen Zers.

Over 20% of both groups said they will tap into their investment portfolios by selling stock, while 15% will divest cryptocurrency.

"Many young people don't have a choice between renting and buying," said Daryl Fairweather, Redfin chief economist, in a press release. "They're renting their home because even though rent payments have increased, too, it's still more affordable than buying in much of the country–and renters don't need a down payment."

In turn, with private mortgage insurance, consumers can get a conforming loan with only 3% down. For first-time and other buyers, various forms of down payment assistance programs are available. Yet awareness of these alternatives has been lacking among the target audience.

"We're very proud of the fact that we can enable people to buy a home with less than 20% down, we've been doing that for a long time," Radian Group CEO Rick Thornberry said in an interview. "But it's also something that we feel a strong corporate purpose to do, not just for the sake of volume, but to do it responsibly and sustainably from a borrower perspective."

The Redfin survey was conducted in May and June; this portion of the study just concentrates on responses from 1,340 Gen Z and 1,973 millennial participants.

As of the end of the second quarter, it was cheaper for households to rent versus owning both on a nationwide basis and in 27 of the top 50 U.S. markets, a First American Financial analysis found.

But there's no blanket answer to this challenge.

"Given current dynamics, more young households may choose to rent in the near term as the cost to own, excluding house price appreciation, has unequivocally increased," a posting from First American Economist Ksenia Potapov said. "Yet, once you factor in house price appreciation, or depreciation in some markets, to the cost of homeownership, the decision to rent or buy will depend on local real estate market dynamics, which will determine if a home is likely to cost more or less in the near future."

The conundrum about the housing market in general is recorded in Fannie Mae's Home Purchase Sentiment Index for August, which at 66.9 is 0.1 higher than it was in July. Compared with August 2022, the HPSI was up 4.9 points.

"The overall HPSI is maintaining the low-level plateau set a few months back, and we don't see much upside to the index in the near future, barring significant improvements to home affordability, which we also don't expect," Fannie Mae Chief Economist Doug Duncan said in a press release. "While renters are slightly more pessimistic than homeowners, for two years now a large majority of both groups have told us that it's a bad time to buy a home, and they've continuously cited affordability concerns as the primary reason."

Only 18% of those surveyed said August was a good month to buy a home, unchanged from July. But those that called it a good time to sell increased by two percentage points to 66%.

Ironically, the shares of respondents that believe rates will go up in the next year increased by 1 percentage point to 46%, while those that think they will move lower gained two percentage points to 18%.

That is because fewer respondents, 34% versus 38% in July, now think rates will remain unchanged.