This year’s housing market was full of highs and lows: High mortgage rates and home prices and low morale for younger generations yearning to achieve the American dream. Mortgage rates peaked at 8% in October before retreating somewhat, while home prices have been rising since January, pricing many people out of the real estate market.
Buying a home has been top of mind for millennials and Gen Zers this year, with about 60% saying they think homeownership is more important than it was during their parents’ generation, Bank of America Institute said in early December. But it doesn’t seem to matter how badly younger generations want to buy a house—there are too many barriers for many of them to break into the housing market.
The difficulty of saving up for a down payment, relatively elevated mortgage rates, and high home prices top the list of troubles for millennials and Gen Zers. And none of that is getting easier any time soon, housing experts agree.
“I don't know if it's ever going to be a young person's good time to buy a home,” Andrew Spieler, a distinguished professor at Hofstra University’s Frank G. Zarb School of Business who focuses on real estate finance and investment, tells Fortune. “The trends have been against them for a long time.”
Housing market conditions aren’t changing that rapidly
Consumers tend to oversimplify housing market conditions simply by tracking mortgage rates and home prices, Spieler says. In fact, it takes more than just a year for the market to really change, and therefore any meaningful difference in the current one will happen after 2024, not during.
“I don't think it's going to be a great buying opportunity” in 2024, he says. “It might be marginally better than where it sits right now.”
The Federal Reserve only started raising interest rates about a year and a half ago, he explains, which isn’t a “long time in real estate.” Plus, housing market conditions are working somewhat counterintuitively right now because both mortgage rates this year were higher than the past two decades and home prices are rising.
“If interest rates go up, housing prices should go down, but only if the sellers want to lower the price,” Spieler says. “And sellers are not very elastic, especially at the beginning. So it takes a while for sellers to really react to these higher interest rates and the decreased affordability of the buyer. A year, to me, is not even a long time in this cycle.”
Millennials get creative to afford homes
In 2023, some would-be millennial and Gen Z homebuyers tried improving their chances of breaking into the housing market. For example, more younger generation buyers are working side gigs in order to save up for a down payment, while others are asking for cash on their wedding registries to cover the cost of buying their first home.
Assuming a median home price of $350,000, a couple would need to come up with $70,000 for a traditional 20% down payment, which is “a lot of cash and can be very intimidating for young couples looking to buy their first home,” Amanda Pendleton, a personal finance expert at Zillow Home Loans, previously told Fortune.
“Even though affordability in this housing market is challenging, first-time buyers are getting creative to make it work, with 60% of first-time buyers using at least two sources to finance their down payment—typically savings and gifts from family or friends,” Nicole Bachaud, a senior economist with Zillow, previously told Fortune.
Beatrice de Jong, a real estate broker associate with The Beverly Hills Estates in Los Angeles, says that nearly all of her younger clients are getting financial help from family in order to buy a home, whether that’s helping with a down payment, co-signing on a loan, or helping with monthly mortgage payments.
“There's a lot more family involvement than I've seen ever before,” she tells Fortune.
In fact, housing affordability has gotten so bad for younger generations that some millennials and Gen Zers have had to go in on buying a house with their parents.
“I also see a lot of the millennial-age range buyers are purchasing homes with the intention of family living with them—like having their parents live in a separate unit, like an ADU [accessory dwelling unit], or maybe in the house with them,” de Jong says.
The creativity will likely have to continue into 2024 with forecasts showing that mortgage rates will likely stay in the 6% range for the year.
“People are just being forced into being more realistic about what they can afford,” de Jong says. “A lot of millennials are getting married and starting a family, but they're probably looking at buying a condo as their first home because the home prices are so high. It's just not realistic to think you can buy a house that has a two-car garage and the features that were so common growing up in the suburbs.”
