As the next great generational cohort begins to enter the market, Generation Z (those born between 1997 and 2012) finds themselves at a crossroads. On the one hand, most agree that homeownership is something they want to pursue, with a Rocket Mortgages report from earlier this year finding that 71.5% of Gen Zers were planning to buy their first home with the next six years.
But recent market conditions have changed things considerably. Rising mortgage interest rates and spiraling house prices due to lack of availability have tempered expectations. While the urge to take that crucial first step of the American Dream remains high, as many as 70% of Gen Z now feel that homeownership may remain precisely that – a dream.
But is there a knight in shining armor in the form of new construction homes? With the promise of contemporary living at more affordable prices and financing incentives available, are these homes the key to homeownership for the next generation of home buyers?
The Gen Z Homeownership Challenge
There’s something different about this generation when it comes to home purchases. For one, they have faced their own unique cocktail of financial challenges, which have made it harder to purchase their first home.
Aside from the shadow cast by the 2008 recession and the ever-present burden of student loan debt, Gen Zers looking to secure a homeownership face more recent obstacles. Take house prices, for example. Just three years ago, the national median house price was $310,000. Today, it’s just over $405,000. Such a dramatic rise has left many young people struggling to afford a home.
Other huge roadblocks include the cost of living rising and inflation nibbling at the value of savings. Getting enough together for a respectable down payment is becoming harder and harder, with 39% citing this as their number one hurdle to homeownership.
When you add in the recent increases in mortgage interest rates and the inability to compete with cash-laden real estate investors, it’s easy to see why this generation is struggling more than most when getting their foot on the property ladder.
Why Gen Z Are Being Drawn to New Construction Homes
Despite the path to homeownership being paved with challenges, new construction homes are attracting the attention of these young prospective buyers for several reasons:
Affordability and Value
New homes are often priced competitively compared to existing stock, and their accompanying well-equipped communities make them even more valuable.
Instead of investing in older homes that may require repairs or renovations, Gen Z buyers feel they can get more bang for their buck with a brand-new home built to the latest construction standards, equipped with the latest tech, and served by a range of doorstep amenities.
Tech-Readiness
Gen Z is synonymous with technology. They’re the first generation to grow up with the internet and smartphones and, therefore, expect their homes to feature fresh technological innovations.
New homes often come with smart home capabilities and start-of-the-art digital infrastructure, ensuring they’re not just cutting-edge today but ready for tomorrow's tech. Older homes, by contrast, might require expensive retrofitting to meet these requirements.
Energy Efficiency
Unfortunately, this generation is also the first to grow up amid the climate crisis. As such, sustainability is so much more than a buzzword to this cohort. It’s very much a way of life.
New construction properties are designed with energy efficiency in mind, with excellent insulation, low-energy lighting and appliances, and other features such as low-E windows. These features not only reduce the impact on the planet but save money in the long run through reduced utility bills.
Communities 'Just' Outside Major Cities
Many new home communities are in growing towns or cities, outside of major cities, where the cost of land is less. Depending on the city and community, the savings may add 30 - 60 minutes each way to their daily commute, but with remote work and gig economy jobs growing in popularity, this will inconvenience some, but it may not be a factor for many. After all, didn't their parents walk to school, uphill both ways, in three feet of snow? Not to mention that in many areas, the growing communities become thriving cities with everything a family or young professional needs. Some may prefer new neighborhoods, parks, schools and commercial centers over downtown life with noise, trash in more places and older buildings. This 'just' outside major cities statement is extremely general, real estate is hyper local and affordable homes keep moving further out.
However, appealing new homes may be, the bottom line is that these homes are proving more attainable financially than resale homes. So, let’s look at why this is the case.
How New Homes Offer Many Financial Incentives for Gen Z
The key reason so many Gen Z buyers are turning to new homes is that they qualify for various financial incentives on top of the inherent advantages of buying a brand-new property.
For assistance, these homes are almost always eligible for first-time buyer assistance programs. Take FHA Loans, for example. These loans are awarded to buyers with lower credit scores or those starting their credit journey and can be secured to a new home without issue.
With high build quality and modern construction standards, lenders are happy to accept discounts and incentive programs such as the Federal Housing Finance Agency (FHFA) first-time home buyer mortgage rate discount on these properties.
This scheme allows eligible first-time buyers to get automatic mortgage rate discounts of up to 1.75 percentage points off conventional 30-year fixed-rate mortgage rates, potentially reducing monthly mortgage payments by as much as 20%.
In short, because these homes are a safer bet than old housing stock, they open up a broad spectrum of eligibility for grants and discounts from federal, state, local, and private bodies. Hence, the attraction for young first-time buyers.
New Home Builders Sweeten the Deal
As if the inherent value and additional financial incentives weren’t enough, new home builders frequently offer further bonuses to sweeten the deal. For instance, take national home builder LGI Homes, who offer all homes with one of two designer upgrade packages.
This suite of upgrades includes a suite of appliances (including the kitchen fridge) from leading brand Whirlpool®, door and security hardware from Kwikset®, smart programmable thermostats, Wi-Fi-enabled garage door openers, upgraded windows and custom cabinets and USB outlets. These upgraded features are worth thousands and come at no extra cost, adding even more value and enhancing convenience.
In some cases, it gets even better. LGI Homes and other new homes sometimes offer to cover closing costs to get the deal across the line. Yet again, offering Gen Z home buyers the potential to save thousands of dollars.
None of these enhancements are available on standard homes, and it’s why so many young people looking to pursue homeownership are drawn to these properties.
New Homes Pave the Way to Homeownership for Gen Z
New homes, with their modern amenities, integrated tech, and energy efficiency, don’t just appeal to Gen Z lifestyle preferences, but they offer a much more affordable route to homeownership.
With financial incentives galore and the inherent value of stepping into a freshly constructed property, these homes may well hold the key (pardon the pun) to getting this beleaguered generation onto the property ladder and out of the renting trap.
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