This generation is being seen as the new real estate investors
A study reveals that 40% of Generation Z want to have a house of their own before they turn 25 years of age.
By: Edda Pujadas
DORAL, FL – Many of them have not yet reached the legal age to drink, but they are already thinking about buying their first house. We are speaking about Generation Z, this group of young people that were born between 1996 and 2010 and whom are coming now into the real estate market in the role of investors.
The oldest members of this Generation Z are today older than 20 years of age, and a majority of them are starting to enter the real estate market for the first time as it is being evidenced by TransUnion, one of the credit bureaus, where they show that the purchase of real estate among these youngsters is skyrocketing.
A new report from TransUnion shows that the number of consumers from Generation Z that actually got a mortgage increased in 112% from the second quarter of 2018 to the second quarter of 2019. This means that in 2018, a total of 150,000 young persons had acquired a mortgage, and in 2019 this figure increased to 319,000.
A survey from Realtor.com states that among members of Generation Z, it was shown that they wish to have a house before they turn 25 years of age and that their main reason to have this ambitious goal is that they want to become investors. They are buying cheap properties, not to live in them but to rent them instead, in such a way that through the rents they will charge, the property pays itself, while they continue enjoying living at Mom’s and Dad’s home.
For example, the average price of one of the properties purchased by the Generation Z youth is $160,000, they provide a down payment of $16,000 or 10%, and even when at that moment they do not get anything back, the property will pay itself thought the profit from the rents, and in approximately 15 years, they will have a fully paid property plus the appreciation of the same.
This generation has an entrepreneurial inclination. Many of them are trying to avoid getting into a traditional professional career. They are more inclined to getting independent jobs, one that allows them to have more and different options from the ones that older generations have had to live through while battling financial crises.
This entrepreneurial preference from Generation Z is mainly due to their massive use of technology. This internet era has opened different ways in which people can get immerse in real estate without leaving their home, nevertheless this plan to become investors has, at the same time, three big obstacles: first, Millennials (the generation before them, those born between 1981 and 1996) and the Baby Boomers, those born between 1946 and 1964; and the decline in real estate interest rates in recent months.
Why? Millennials, who have been criticized because they are coming in late to the real estate market, are awakening now, and they now represent 34% of the housing sales in 2019. Even when they lived for many years renting houses in the entertainment districts such as Miami Beach and Brickell, now they prefer to live and buy in the suburbs and those areas of the city that are cheaper. They now encounter a fight with the Generation Z youth, for houses that every day are scarcer, especially in the range of price that the younger generations search.
On the other side, Baby Boomers are also interfering with the entrepreneurial plans of the younger generation, most of them their own grandchildren, because they refuse to move out. They have already paid off their homes, they are comfortably living because they only need to pay for the property taxes, on which they also have exemptions, the property insurance, and the homeowner’s association. They are no longer interested in selling, and this also limits the inventory of real estate.
Interest in home purchases has fallen to its lowest levels in the last 50 years, reaching limits of 2.98% for 30-year loans. This abysmal drop in interest rates has increased the number of buyers, increasingly limiting the inventory of existing homes and therefore diminishing the options for young investors who, now, must be willing to make more solid offers if they really want to buy a property.
WHAT ARE THE YOUNGER BUYERS SEARCHING FOR?
Generation Z members tend to be energetic and enthusiastic, and they are willing to listen and learn; this can compensate for their lack of experience. They are also experts in technology, they are practical, and they hate to lose time and money, therefore for them, the best way to search for anything is to do it online.
Millennials and Generation Z are close in age and have similar communication styles; they value continuing education, freedom, flexibility, and stability, and for this reason, when they search for something, it doesn’t matter if it is a house or a pencil, they conduct daily controls via digital platforms such as Instagram, Snapchat, and YouTube. They trust the reviews, comments, and recommendations of previous buyers.
For both generations to buy a house is a good investment. According to the survey conducted by the website Porch, 86.4% of Millennials and 85.6% of Generation Z believe that real estate is a productive investment and one that is growing at this time.
Both groups of young adults search for similar characteristics in their real estate investments: that they are economic, that these do not need fixes or renovations, because, among other things, they do not have the time nor money to work on them, and also that these properties have a low maintenance cost.
In comparison with Generation Z, Millennials are searching for this type of housing to live in. They also want them to have outdoor spaces, intelligent devices with which to control temperature, wireless security cameras, and entry locks controlled by smartphones, as an example. They also wish to have energy-efficient devices, and they are willing to pay between 2% and 3% more for these improvements, which in turn will reduce their electric bills.
While the real estate market is still the most lucrative investment opportunity among the public in general, its future depends on the interest, commitment, and continuous activity of the younger members of this market, which has been highly stimulated in these last years by the decrease in the mortgage interest rates.