There is no more iconic symbol of achieving what is known as the "American Dream" than buying a home. A real house. One with a white picket fence, a small yard and a basketball hoop where the kids can shoot for hours without their parents having to worry or be bothered. Buying an apartment isn't bad either — that too was once considered an expression of the American Dream. And just as there is no more iconic symbol of that dream than homeownership, there is probably no clearer illustration of its collapse — or, more precisely, the collapse of the hope of achieving it — than the inability of young Americans today to buy their first home.
Housing costs and high mortgage rates are making homeownership a shrinking part of Gen Z's path toward building generational wealth. According to the National Association of Realtors, the median age of first-time homebuyers in the U.S. has risen to 40, up from 30 in 2008, before the Great Recession triggered by the housing bubble. These buyers accounted for just 21% of the market last year, an all-time low. According to a Pew Research Center survey, nine in 10 adults under 40 say it is harder for young people today to buy a home than it was for their parents.
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There is no more iconic symbol of achieving what is known as the "American Dream" than buying a home
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All of this is pushing those born in the 21st century, who have lived through so many upheavals — wars, an economic crisis of almost unprecedented proportions and a global pandemic — to think about securing their future much earlier. But that future, it turns out, includes fewer and fewer plans to buy a home and many more plans to invest in stocks, bonds and retirement accounts.
Retirement instead of a mortgage
According to Pew, young people are less likely than older adults to say that buying a home is a "very good" investment. Instead, they see saving for retirement, trading through apps and contributing to high-yield savings accounts as the best ways to build wealth. According to an analysis of retirement savings behavior published by financial services company Fidelity, Gen Z contributions to these accounts are up 65% year over year, more than twice the rate among millennials.
Kana Cummings, 26, told The New York Times that she began learning about personal finance in 2020, when "the world was kind of crumbling." It was her final year of college, and several students organized a personal finance workshop to help ease anxiety during the coronavirus pandemic.
"I think people were like, ‘We really need to be thinking about these things kind of early,’" Cummings said.
Young people are less likely than older adults to say that buying a home is a "very good" investment
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After attending the workshop, she opened an individual retirement account, funding it with money she earned from a summer internship. She has continued investing ever since. When she landed a job at a management consulting firm, she contributed to her company's retirement plan and funded her personal savings account with her annual bonuses. She also has a separate emergency fund.
"Compared to before when people stayed in their careers longer and companies offered pensions and things like that, I think people have to fend for themselves a little bit more," Cummings said. "I’m just trying to be conservative and make sure I have a few different buckets of savings so I’m all set in the future."
Ultimately, Cummings said, she would like to buy an apartment in a major city, but buying a home is not something she is actively saving for. She also does not spend money on rent, living with her parents before starting a master's program in business later in September.
Looking for flexibility
This approach also fits other patterns in Gen Z behavior, including going out less, a sharp decline in alcohol consumption and plans to postpone starting a family for many years.
Roberta Katz, a Stanford researcher who conducted extensive research on Gen Z, explained: "For Boomers, there was a sense that you have your home, that you build your wealth, that you could build an estate. For Gen Z, when we did our study, they did not have any sense of that. One of the things our study found was a very high value for Gen Z on flexibility because there was a belief that the world they were going to know was a world of change."
Perhaps at least this economic aspect of Gen Z's sharp break from everything previous generations in the U.S. knew could have been avoided, if almost every generation since the baby boomers hadn't focused only on itself and ignored the next generation. Alongside the basic cost of living and massive student loans, the housing market is where this is most apparent. Most Americans, 67%, still think buying a home is a good investment these days, but young people no longer believe it.
Lillian Rouse, a data analyst, and Mark Debney, who works for a technology company in North Carolina, have been looking for their first home. After many months, they decided to stop looking and wait until they can afford one. Together, they earn $120,000 a year, which is nowhere near enough to cover both their living expenses and a mortgage.
With mortgage rates so high, buying a first home has become even more daunting
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For comparison, in 1950 the median home price in North Carolina was $4,901, equivalent to roughly $55,000 to $60,000 in recent purchasing power. Today, however, the median price in major North Carolina cities has reached $500,000. In the 1950s, the average annual family income in the U.S. was around $3,000 to $4,000, meaning a typical home in North Carolina cost less than two years of total family income.
Rouse and Debney found a home they loved but realized they could not afford it, so they put their money into a savings account instead. With mortgage rates so high, buying a first home has become even more daunting, while real estate agents are taking longer and longer to sell homes.
Rouse told The Times that postponing the purchase of a home also means postponing starting a family.
"It’s not a fun decision to have to make. I think it’s best that we wait to have kids until we have a house," she said.
Experts have indeed linked declining fertility rates — which reached a new low in the U.S. last year, at about 1.6 births per woman — to high housing costs as well.
Robinhood app, which suddenly made the stock market more accessible to everyone
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One of the significant factors that has helped Gen Z find its way into the investment market is the proliferation of trading apps such as Robinhood, which suddenly made the stock market more accessible to everyone. Young people started with individual stocks and quickly plunged into the world of investing.
A Gallup study found that 81% of Gen Z adults seek personal financial advice, with 75% finding information online. They take whatever money they have, put it into accounts, continue renting or living with their parents and hope that one day they, too, will be able to enjoy the American Dream.