For Gen Z and Millennials, buying a home often feels like winning the lottery rather than a regular part of adulthood. Many young adults cannot afford homeownership due to rising prices, stagnant wages, and a competitive market. According to IPX 1031, 63% of Americans can’t afford to buy a home this year, including 87% of Gen Z and 62% of millennials.
Despite the grim headlines, you will be better prepared to handle the storm if you understand its cause and what you can do.
Why the Housing Crisis Exists
Housing affordability isn’t a new phenomenon. However, it has intensified dramatically in the last decade. As a result of multiple factors, the modern real estate landscape has become one of the most challenging in history.
Housing prices have outpaced wages.
Median U.S. home prices jumped 423% between 1985 and 2022, but household income grew only 216%. Basically, home values have risen twice as fast as paychecks.
To put that another way, in 1985, the median home would have sold for $261,650, not $433,100, if housing costs had kept pace with income.
Since 2000, a period of explosive housing growth, the gap has grown even wider. Over the past two decades, the median house price has risen 162% (from $165,300 to $433,100), while incomes have risen 78% (from $41,990 to $74,580). As a result, home prices have grown more than twice as fast as wages for most of the 21st century.
According to the same growth rate as income since 2000, the median home today would cost about $294,000.
At the same time, the affordability gap is hitting records. Median single-family home prices were 5.6 times higher than median household income in 2022, the worst ratio recorded since the early 1970s. It’s a sharp increase compared to just a few years ago, fueled by the COVID-19 pandemic-induced price spike.
Housing supply is low — and demand is high.
As a result of the 2008 financial crisis, new home construction slowed dramatically. During the Great Recession, housing inventory was low, builders became cautious, and investors bought up foreclosed homes. By the time Millennials were ready to buy a house, there simply weren’t enough.
With Gen Z entering the same market, they will face even fiercer competition from;
- Other first-time buyers.
- Baby boomers are downsizing their homes.
- Single-family homes are purchased as rental properties by investors and corporations.
As a result of this supply crunch, bidding wars occur and prices rise.
Student debt eats into buying power.
There are many Millennials who graduated during or after the Great Recession, and Gen Z is entering the workforce during uncertain economic times. With an average student loan debt of around $38,000, students from both generations are burdened by significant student loan debt.
According to Empower survey data, Gen Z participants pay an average of $526 per month toward student loans, a substantial amount higher than the overall average payment of $284 for all ages.
Further, nearly a third of all borrowers will have higher monthly payments in 2025, and more than half (56 percent) will have difficulty saving or investing.
Inflation and rising interest rates.
Mortgage rates were historically low in 2020 and 2021, causing a surge in demand. As inflation spiked in 2022, the Federal Reserve raised interest rates. While prices remained the same, this doubled (or in some cases tripled) the monthly cost of financing a home.
If a $300,000 home had a 3% interest rate in 2021, principal and interest would have cost about $1,265 per month. Over $2,000 per month would be the cost of that same home if interest rates were 7%.
Generational wealth gaps.
Baby Boomers and Gen X buyers could buy homes in the ’80s and ’90s at much lower price-to-income ratios. As their equity grew, they gained a financial advantage. While family assistance for down payments benefits some younger buyers, the playing field is uneven for those without generational wealth.
The Emotional Toll on Younger Generations
Money isn’t everything — it’s about life milestones and stability. When you can not buy a home, you may experience the following;
- Delayed marriage and family planning.
- Feelings of failure when compared with older generations.
- High-rent situations make it impossible for people to save.
As a result of this frustration, some young adults are questioning whether homeownership is even worthwhile.
What You Can Do: Strategies for Gen Z and Millennials
Even though the housing market is tough, buying a home or building long-term stability isn’t impossible. Here’s how you can approach it strategically.
Reframe the goal: Owning a home is not always the goal.
Buying a single-family home in your dream neighborhood right now may not be feasible, but you should consider one of the following alternative entry points;
- Condos or townhomes. They are often more affordable and require less maintenance.
- Multi-family properties. Your mortgage can be offset by renting out one unit while living in the other.
- “Starter” homes. Invest in smaller, older properties that you can renovate over time.
Even if it isn’t your forever home, you should get into the market to build equity.
Strengthen your financial position.
If you want to improve your buying power before beginning your house hunt, you should do the following;
- Reduce your debt-to-income ratio by paying down high-interest debt.
- Improve your credit score, even by 20 points, to get better loan terms.
- Invest aggressively in a down payment, regardless of the sacrifices it might involve in the near future.
If you intend to buy a house in the future, consider setting up an automatic savings transfer.
Build your down payment fund strategically.
For 33% of millennial home buyers, saving for a down payment was the most challenging part of buying a home. It can, however, be managed if you have a clear plan.
- Open a dedicated account. Separate your down payment from your everyday spending. You can increase your funds faster by opening a high-yield savings account. Ideally, set up automatic transfers from your checking account to your “future home” fund.
- Establish a realistic timeline. Calculate how much you need to save each month based on when you want to buy. Use the extra time to pay off debt and improve your credit score.
- Make cuts wherever you can. Small sacrifices add up over time. If you want to save money, try eating out less, trimming unused subscriptions, or postponing large vacations. Also, if you’re renting, consider downsizing or moving back home temporarily can be a big help.
- Take advantage of windfalls. You can boost your savings with tax refunds, work bonuses, and cash gifts.
Explore first-time buyer assistance programs.
Federal, state, and local programs can assist with down payments, closing costs, or favorable loan terms. Among them are;
- FHA loans. You can put down as little as 3.5%.
- VA loans. For veterans who qualify, there is no down payment required.
- State grants. Buyers who qualify can receive assistance ranging from $5,000 to $20,000.
It’s worth doing some research early — you might qualify for more help than you think.
House hack.
With house hacking, you use your home to generate income. Examples include;
- Rent out a bedroom on a long-term basis.
- You can use short-term rental platforms like Airbnb (where the laws allow).
- Convert a basement or garage into a rental unit.
By doing so, you can make your mortgage much more manageable and build wealth much faster.
Expand your location search.
As a result of the pandemic, remote work became more common, and with it, more flexible living options. Even extending your search radius by 20–30 miles can make a huge difference in affordability.
Consider;
- Secondary cities
- Rural or suburban areas
- Up-and-coming neighborhoods before they peak
If Buying Isn’t Possible Yet
You can still prepare for future homeownership while making your current living situation more stable, even if the numbers don’t work for you right now.
Negotiate your rent.
In most cases, landlords prefer stable tenants to turnover at the expense of cost and risk. It may be possible for you to;
- Sign a longer lease in exchange for a lower rate
- Offer to handle minor maintenance
- Pay a few months upfront for a discount
Co-living arrangements.
Co-living isn’t just for college students — it can drastically reduce expenses and free up savings.
Invest elsewhere.
When you can’t afford property yet, consider investing your savings in index funds, REITs, or high-yield savings accounts. As a result, your money continues to grow instead of sitting idle.
Long-Term Solutions (Beyond the Individual Level)
There is more to the housing crisis than just personal finances — it requires policy and cultural shifts to address. Although you may not be able to influence all of these factors at the same time, understanding them can help you advocate for change.
Here are some long-term solutions;
- Reforming zoning codes in urban areas to allow for more multifamily housing.
- Providing incentives to encourage new construction, especially affordable housing.
- The regulation of institutional investors buying single-family homes.
- Debt relief for students would make housing more affordable.
Raising awareness, supporting housing-friendly policies, and supporting organizations can help bring these changes about.
Final Thoughts
As a result of decades of economic shifts, policy decisions, and market dynamics, homeownership has become increasingly challenging for Gen Z and Millennials.
Although the system is flawed, individuals still have options. In this tough market, you can still achieve homeownership by understanding the causes, being creative with your housing strategy, and utilizing every resource available to you.
Regardless of the housing market, your preparation, strategy, and resilience are within your control.
FAQs
Is it better to rent or buy in today’s housing market?
It depends on your location, income stability, and long-term goals. If you invest the difference in other assets, renting in high-cost cities can be more affordable than buying. However, if you plan on staying in one place for more than five years and can afford the upfront costs, buying is still more likely to build your wealth in the long run.
How much should I save for a down payment?
In the past, 20% down was recommended to avoid private mortgage insurance (PMI), but most first-time buyers use programs that require only 3–5% down. Amounts vary depending on your budget, loan type, and timeframe.
Are corporate investors really making housing more expensive?
Yes, in specific markets.
Many single-family homes have been purchased by large institutional investors and hedge funds, especially in fast-growing metro areas. As a result, the supply of housing for regular buyers is impacted, and prices and rents are likely to rise.
Can student loans prevent me from getting a mortgage?
Not automatically, but they do affect the debt-to-income ratio, which lenders use to determine your creditworthiness. It’s possible to qualify for a lower monthly payment by paying down student loans or refinancing for a lower monthly payment.
What’s the best first step if I want to buy a home in the next few years?
You should begin by checking your credit score and reviewing your finances. Next, set a realistic down payment and closing cost savings goal. And, research and apply for local first-time homebuyer programs early — they can take months to prepare for and complete.
Image Credit: Photo by Artem Podrez; Pexels
