For a generation whose oldest members are only a few years out of college, owning a home is becoming an important goal — and, increasingly, an achievable one.
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Over Independence Day weekend, Mary and Cameron McMillan celebrated their own independence as first-time homeowners.
Previously renting an apartment in Yarmouth after moving here from Cambridge, Mass., the couple bought a newly built three-bedroom, three-bath house in Westbrook. There’s even a backyard and deck for their black Labrador, Dewey.
“It’s like a ‘pinch me’ moment because you work so hard to buy a home,” Mary McMillan gushes two days after the move. “It was crazy, to keep going through the house and thinking, ‘This is ours,’ not a confined area like an apartment. Then the toilet flooded and I’m like, ‘Oh gosh, this is ours.’”
A plumber arrived first thing Monday morning to fix the problem.
Such are the ups and downs of homeownership for a growing number of buyers in their 20s. McMillan, 27, works as a mental health clinician in Kennebunk, while her 29-year-old husband is an Army National Guard veteran working in military defense.
The couple bought the house in the new Rivermeadows development for $608,000, paying 12% down and financing the mortgage with a government-backed loan for veterans. The loan carries an interest rate of 6.25%, lower than the current 7.56% for the 30-year fixed-rate mortgage.
“If interest rates go down, then we’ll refinance,” Mary McMillan says.
Keen to trade long-term rent payments for a place of their own, many young professionals are snapping up residential properties before age 30 at a faster clip than their forbears at the same age.
That’s true even in Maine, where tight inventories pushed the median home sales price to a record $398,250 in May, edging closer to the $424,500 national median.
What’s fueling the Gen Z or “Zoomer” housing boom?
“Culturally, there’s a growing appreciation for homeownership among the younger crowd, driven by the stability and investment potential it offers despite market challenges,” says Sierra Rosendo Boler, an associate broker with Portside Real Estate Group who represented the McMillans.
“I bought my first home when I was 28, and I firmly believe that being financially literate and decisive were key factors in making that plunge early.”
So does her colleague Carly Chasse, a 28-year-old homeowner and residential property investor now helping other women do the same.
“My parents lived in the same house for 30 years and didn’t invest in real estate, so they don’t know anything about it,” she says. “If you’re not born into it, you have to learn.”
New generation
Roughly speaking, Generation Z is the demographic cohort born between 1997 and 2012, coming on the heels of millennials. At 27, the oldest from the generation are out of college and in the early stages of their careers and in some cases marriage.
A force to be reckoned with, Gen Z is projected to become the only generation to reach 2 billion people, or roughly a quarter of the total population, with an estimated $12 trillion in spending power by 2030, according to a June report by NielsenIQ and World Data Lab.
The report also shows that the average American 25-year-old Gen Zer has an annual household income of over $40,000, rendering them better off than millennials were in early adulthood, and placing their net income at more than 50% above what Baby Boomers earned at 25.
One takeaway, per World Data Lab CEO Wolfgang Fengler: “Gen Z is the largest, the richest and the most global generation ever. Businesses need to know that Gen Z is 2 billion people strong, and meeting their needs is a must.”
Those businesses include real estate brokerages and banks working with young homebuyers.
While Generation Zers own a smaller proportion of homes than their elders, most are tracking ahead of where their parents were at the same age, as documented in a January report by online brokerage Redfin.
Close to 28% of today’s 24-year-olds own homes, compared with 25% for millennials and 24% of Gen Xers when they were the same age. Researchers attribute the difference to the fact that many Gen Z homeowners bought during the pandemic, when interest rates were lower.
By contrast, many millennials were struggling to find work back in their early 20s during the Great Recession, which made it hard to afford a home. And when Gen Xers were in their early 20s, they were grappling with some of the highest mortgage rates in history — around 11% in 1989, when the oldest Gen Xers were 24.
At the time the report was published in mid-January, mortgage rates had dropped to 6.8% from more than 8% in October.
While mortgage rates have since edged back up to 7.56%, economic indicators including slower inflation in June are fueling expectations of a cut in the Federal Reserve’s official short-term interest rates by September. That may bring down long-term borrowing costs for consumers and homebuyers.
Buyer backlog
While 60% of young Americans are funding down payments from their own paycheck, 39% are doing so by working a second job and 36% via a family cash gift as home prices keep rising, the Redfin survey shows.
In spite of those headwinds, young professionals “seem anxious to start their lives in their very own home,” observes Kennebec Savings Bank President and CEO Andrew Silsby, who bought his first home at 27.
“We grow a new batch of first-home homebuyers every single year, but over the last 10 years or so more have been fine with renting, focusing on careers and waiting to both marry and start family,” he says.
“That has created a bit of a backlog of folks now looking for their first homes, and with lower levels of housing inventories to select from, it has created an extremely competitive market.”
Many of the first-time buyers, Silsby notes, “have been able to save and invest so they are more prepared to buy than their peers of 10 or 15 years ago. Having established jobs and some savings put away for a down payment makes them attractive for banks to finance this newest crop of customers.”
New buyers include his daughter, Abby Silsby, and her fiancé, Cliff Anderson. They recently closed on a three-bedroom house in Portland’s North Deering neighborhood for $570,000, or $25,000 below the listed price.
“We didn’t want to pay rent forever and really wanted the stability of homeownership,” Abby says. “In the last two years, we’ve moved five times so renting always felt very temporary. We knew we wanted to be in the Portland area, and we loved the idea of a permanent move.” The couple paid 11% down for their house and financed their mortgage via Kennebec Savings.
OK, Zoomer
When it comes to today’s young adults, Tom Landry of Benchmark Real Estate in Portland is seeing two emerging categories, one being fresh college graduates frustrated by the high cost of rentals coupled with student loans but not yet in a position to buy.
The second group, he says, is “getting a little bit creative and tapping into different ways of getting money.”
Some are getting loans from their parents as a business arrangement rather than a “freebie,” while others are living at home with their parents longer to save money until they can afford to make a purchase.
“In the past that would have viewed as ‘failure to launch,’” he says, “but sometimes you have to do these things to get ahead.”
Landry says he also notices a lot of adventurous young buyers going for less pricey, fixer-upper houses of retro, antique or even mid-century vintage.
“It’s not necessarily the ‘Brady Bunch,’ but it’s like, ‘Wow, man, that’s kind of kitschy and cool,’” he says.
Landry’s advice to aspiring owners: “Don’t wait. All you need is 5% down and sometimes 10%. If you wait until you can put 20% down, you could be paying another five years of rent, and think of all that money. Get in front of a lender and let’s start the process.”
Thinking back to her first home purchase in the mid-1990s, Dava Davin says she was single and had two jobs at the time. She bought a duplex, renting out the “nice” side and living on the other, long before she went into real estate.
Today, the founder and principal at Portside Real Estate Group says that young people who want to buy a house will always “figure it out,” even in a competitive market.
“Prices and interest rates are outpricing many young people certainly in southern Maine,” she says. “The good news is we’re seeing them to expand their searches up to Androscoggin and Kennebec counties, and into other areas.”
On a practical note, Davin suggests that aspiring buyers cut down on expenses, especially since it’s so easy to spend money “at the click of a button,” and to “stop going to Starbucks every day.”
That’s not the only distinguishing factor about some of her youngest clients. They include a couple in their 20s who bought a house having never used a checkbook or filled out a money order. “That was crazy,” Davin says, “though my boys don’t have checkbooks either.”
On the financing side, Lisa Bellefleur, vice president of mortgage lending at Town & Country Federal Credit Union in South Portland, reports seeing a lot of young clients seeking a loan pre-approval before embarking on a home search. Her team also offers budgeting guidance so that when the right house becomes available, the clients can make an offer they can afford.
“You don’t want to be house-rich and cash-poor,” she says.
Settling in
Even in the pricey Portland area, young buyers are putting down roots in new homes.
Unburdened by student loans, Jacqueline and Isaac Schlotterbeck paid $695,000 in cash this past March for a two-story home in Scarborough’s Pleasant Hill.
“We put in offer so quickly they cancelled the open house,” says Jacqueline, 28.
In need of some updates, the 50-year-old house was furnished with wall-to-wall carpet and wallpaper on top of wallpaper that the couple first saw via a FaceTime tour. Then living in a small, rented house in Nashville, Tenn., they moved to Maine to be closer to family.
Recalling previous traffic hassles in Nashville and Washington, D.C., Isaac, 30, appreciates not having a long drive to go out to dinner, adding, “We like being in a small city.”
After finishing the first round of major projects in their new abode, they hope to eventually install heat pumps after upgrading the electrical panel to 200-amp service.
“It’s feels like, in a good way, there’s always something to do,” Isaac says. That includes mowing the lawn every 10 days.
“It feels like wherever we lived before, I was always hesitant to buy a new piece of furniture because it might not fit in the next place. Here we can really settle in,” Jackie says, as Isaac speaks of a “sense of permanence.”
Meanwhile in Westbrook as the McMillans settle into their new home, they are planning their next home project — a fence for their furry pal, Dewey.
