THE BASIS POINT

Gen Z homeownership rate 30%, more than Millennials & Gen X at same age. How are they affording this?

 
 

Dana Anderson and Sheharyar Bokhari at Redfin have some important new analysis showing Gen Z homeownership tracking strongly relative to millennials and Gen X at their age. Below are homeownership percentages by generation, and lender math showing how Gen Z, millennials, and Gen X afford homes in 2023.

GEN Z HOMEOWNERSHIP

Last year, the Gen Z age range was 10 to 25. Redfin notes (using HMDA data the Federal government collects on all mortgages) that 30% of 25 year olds owned their homes in 2022.

This is compared to millennials (28%), Gen X (27%) and boomers (32%) when they were age 25.

Redfin notes the typical primary residence purchased in 2022 by someone under 25 cost $235,000 and had a $10,000 down payment.

GEN Z HOMEOWNERSHIP AFFORDABILITY 2023

– Monthly cost on a $235,000 home purchase with $10,000 down and today’s 6.625% rate is $1974 (mortgage payment, insurance, taxes, mortgage insurance).

– If you had no other monthly debt, you’d need to make $55k* per year to qualify for this.

– If you had $600 in credit card, auto, and other monthly debt, you’d need to make $72k* per year to qualify.

MILLENNIAL HOMEOWNERSHIP AFFORDABILITY 2023

– Redfin notes the typical primary residence purchased in 2022 by someone age 25-34 cost $355,000 and had a $30,000 down payment. Millennials were ages 26-41 in 2022.

– Monthly cost on a $355,000 home purchase with $30,000 down and today’s 6.625% rate is $2762 (mortgage payment, insurance, taxes, mortgage insurance).

– If you had no other monthly debt, you’d need to make $77k* per year to qualify for this.

– If you had $600 in credit card, auto, and other monthly debt, you’d need to make $94k* per year to qualify.

GEN X HOMEOWNERSHIP AFFORDABILITY 2023

– Redfin notes the typical primary residence purchased in 2022 by someone age 45-54 cost $405,000 and had a $50,000 down payment. Gen Xers were ages 42-57 in 2022.

– Monthly cost on a $405,000 home purchase with $50,000 down and today’s 6.625% rate is $2975 (mortgage payment, insurance, taxes, mortgage insurance).

– If you had no other monthly debt, you’d need to make $83k* per year to qualify for this.

– If you had $600 in credit card, auto, and other monthly debt, you’d need to make $99.7k* per year to qualify.

HOME AFFORDABILITY MATH 2023

Above I’m using calculations lenders use to approve loans in America.

Lenders divide your total monthly proposed housing and non-housing debt by your gross income.

This gives them a percentage called a debt-to-income ratio (DTI).

Federal loan approval regs allow for all mortgages of this size to have DTI up to 43%, therefore the above calculations showing income needed to qualify are predicated on 43% DTI.

So if these scenarios are close to your gross income (as well as purchase price and down payment targets) and you had a lender do the math, it would work and you’d get pre-approved.

Please comment or reach out directly with questions.

Also, don’t miss the link below showing affordability on 87% of U.S. homes for sale right now.

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Reference:

Gen Z Tracking Ahead of Parents’ On Homeownership, Millennials Behind (Redfin)

Prices on 87% of U.S. homes for sale are $375,700. Is this affordable? (TBP)

 

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