Waning housing affordability isn’t going away anytime soon, and neither are the impacts that it’s having on young aspiring homeowners. While this has become increasingly evident in recent months as the market has cooled, recent reports suggest that it also marks an entrenched trend among future buyers.
According to a recent Credit Karma study reported by Hearst Connecticut Media, nearly a third of Gen Zers—aged 18 to 25—are living at home with their parents or relatives in the U.S. as a long-term situation.
While several reasons contribute to the phenomenon, experts argue that affordability issues coupled with recent economic uncertainty are a prime culprit leading to the failure to launch.
“There has been a migration into the family nest; however, it was a trend that only accelerated during the pandemic,” says Jessica Lautz, vice president of demographics and behavioral insights for the National Association of REALTORS® (NAR).
“Young adults may have moved home due to the ability to work or go to school virtually during the pandemic, but the trend was afoot before the pandemic,” Lautz adds.
According to the Credit Karma report, which surveyed more than 1,000 young adults online over the summer, 32% of zoomers spend half of their monthly income on housing (rent/mortgage), while 28% are unable to save their money right now.
Lautz spoke positively about the uptick in Gen Zers returning, suggesting that it may be a financially prudent move considering the current state of housing and rental expenses in the market.
Realtor.com® Chief Economist Danielle Hale echoed similar sentiments.
“The pandemic does appear to have accelerated that trend at least temporarily, but it pre-dated the pandemic, and a good number of young adults are likely to continue to live at home even after the pandemic,” Hale says.
“There are several reasons for this trend, including cultural and demographic shifts that have made it seem more acceptable. In addition, the skyrocketing cost of both homebuying and rent is likely a factor,” she says.
In past studies, Hale says realtor.com® examined how much young adults could save by renting from their parents. The 2021 study deduced that living at home for between one and two years was enough to save up to 5% of the median home list price.
“In other words, after a year or two at home, young adults in many cities who saved what they would have paid in rent would likely have enough to put down a typical first-time down payment of approximately 5%,” says Hale.
That may be a boon for young adults as housing expenses have generally surged.
Despite persisting signs of cooling home value growth nationwide, the price tags for homes have continued to grow by double-digits monthly for the past two years. The rental market has followed a similar trend.
Buyers have also had to shoulder the financial burden of elevated inflation, the Fed hiking interest rates, and surging mortgage rates, which passed the 6% benchmark this month.
Like millennials, Gen Zers also have to consider the impact of student loan debt on their homeownership dreams. Recent Bloomberg reports suggest that Gen Zers—aged 20 to 25—may face a larger debt burden than millennials.
Finances aren’t the only reason young adults might still live with their relatives. Data from the Pew Research Center also suggests that demographics, culture and geography play a role.
“The nation over the last 50 years has become more diverse. And the groups that are basically gaining more prominence tend to have a greater share of young adults living in multigenerational arrangements,” said Pew Research Center Senior Researcher Richard Fry who was featured in Hearst’s article.
On the surface, the future generation of homebuyers staying out of the market for an extended period may seem like an ominous prospect; however, some industry onlookers view the trend as a potential relief in the market for the time being.
“Right now, it’s a blessing because there is a major housing shortage,” says Richard La Rue, the designated broker of HomeSmart’s Phoenix brokerage.
La Rue is also pursuing his doctoral in intergenerational studies related to the real estate industry. He tells RISMedia that the uptick in Gen Z multigenerational living could relieve the market while inventory and demand are still unbalanced.
“As we ease back into that and we get more housing starts, I think it’s a relief,” La Rue says. “It really is a blessing that we have homes with multiple family members living there…I think it’s just a natural evolution that seems to be hitting its stride right on cue.”