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Millennial and Gen Z Home Trends: What’s Driving Their Real Estate Choices

The real estate market is continuously shaped by the preferences of its newest buyers. Millennials and Gen Z, now the largest demographics entering the market, are rewriting the rules of homeownership. Their distinct lifestyles, values, and priorities have redefined what makes a house a “home.” Let’s explore the key trends driving their real estate decisions and how these generations are influencing the future of housing.

Sustainability is a Must-Have

One of the defining traits of Millennial and Gen Z homebuyers is their commitment to sustainability. Eco-friendly features are no longer a bonus; they’re an expectation. Homes with solar panels, energy-efficient appliances, and smart thermostats are highly sought after.

These generations also favor homes built with sustainable materials and located in eco-conscious neighborhoods. From low-maintenance landscaping to water-saving fixtures, sustainability impacts every part of their decision-making process.

Why it matters: Younger buyers are willing to pay more upfront for energy-efficient homes because they understand the long-term savings and environmental benefits. Builders and sellers catering to this trend can attract these environmentally conscious consumers.

A Strong Desire for Flexibility

The traditional layout of a home is being challenged by the needs of these modern buyers. Millennials and Gen Z value homes that offer multifunctional spaces. As remote work continues to thrive, they prioritize properties with home offices or spaces that can be easily adapted for work, fitness, or hobbies.

Open floor plans, bonus rooms, and customizable layouts allow these buyers to create a home that fits their unique lifestyles. Flexibility in design reflects their desire for spaces that grow with them and adapt to changing circumstances.

Why it matters: Sellers who stage rooms with multiple functions and highlight flexible layouts can better connect with younger buyers seeking these dynamic spaces.

Urban Living with a Twist

While Millennials and Gen Z often gravitate towards urban environments, their preferences go beyond the allure of city living. They seek walkable neighborhoods that offer a mix of convenience and community. Proximity to local shops, dining options, parks, and public transit are non-negotiable.

Interestingly, there’s a growing trend of these buyers choosing smaller, “up-and-coming” cities over major metropolitan areas. Affordability, lifestyle quality, and a lower cost of living make mid-sized cities appealing alternatives to traditional urban hubs.

Why it matters: Highlighting walkability and community features in real estate listings can resonate strongly with these buyers. Mid-tier cities and suburban neighborhoods with urban amenities are particularly appealing.

Technology Integration

Smart homes are a major draw for Millennial and Gen Z buyers. From smart locks and security systems to voice-controlled lighting and climate settings, technology is at the forefront of their purchasing decisions. These generations value the convenience and efficiency that come with tech-enabled living.

Flat design style modern vector illustration concept of smart house technology system with centralized control of lighting heating ventilation and air conditioning security locks and video surveillance energy savings and efficiency. Isolated on white back

Properties with pre-installed smart systems or compatibility with popular devices like Google Nest or Amazon Alexa often stand out. Additionally, strong internet connectivity is crucial, particularly for remote workers and tech-savvy homeowners.

Why it matters: Investing in basic smart home upgrades can significantly boost a property’s appeal. Highlighting tech features in marketing materials can help attract these buyers.

Prioritizing Affordability and Value

Affordability is a significant factor for Millennials and Gen Z, particularly in today’s competitive housing market. These buyers often enter the market with student loan debt and limited savings, leading them to prioritize affordability without compromising on value.

Smaller homes, fixer-uppers, and properties in less traditional locations have gained popularity among these generations. They’re also more open to exploring alternative financing options, like co-buying with friends or family, to achieve their homeownership goals.

Why it matters: Sellers and agents who offer creative solutions or emphasize the potential for sweat equity can better cater to these budget-conscious buyers.

Final Thoughts

Millennials and Gen Z are reshaping the real estate market with their distinct preferences and priorities. Their focus on sustainability, flexibility, technology, affordability, and community-driven living highlights the direction of future housing trends. Whether you’re a seller, agent, or builder, understanding and catering to these trends can help you better connect with this influential audience.

Tips to consider when buying a home with family members

The industry that brought you the iconic “location, location, location” has a new one for you: “multigenerational housing.” No, it’s not a new concept, but housing that caters to several generations under one roof is gaining in popularity.

We started seeing the demand during the recession, when unemployment propelled younger workers back to Mom and Dad’s house. Then, there’s the fact that millennials are tending to put off marriage and remain at home longer, according to Diana Olick at CNBC.

Immigration is also a driver of the multi-gen housing market. “In Asian and Hispanic cultures, multigenerational living is usually the rule. As these immigrants move to the U.S. in greater numbers, they bring the trend along with them,” Olick suggests.

Burns Consulting surveyed 20,000 homebuyers last year and found that 44 percent said they wanted room for their parents. Forty-two percent were parents wanting room for their adult children.

Thinking about moving in with your kids or your parents? Read on for some tips gleaned from the 51 million Americans who have done it.

Home shopping tips

The most important aspect to consider when shopping for a multi-gen property is privacy. Each member of the family should have some space to call his or her own that provides a place to retreat. This may mean building an “in-law” unit or constructing new walls to divide rooms.

You’ll need to look into the local zoning laws if you choose the former or find a large home to take advantage of the latter.

Lucky you if you choose a community in which home builders are catering to the trend. Lennar, for instance, offers NextGen homes, also known as The Home Within a Home®. They’re currently offered in 13 states (Washington, Oregon, California, Nevada, Arizona, Colorado, Texas, Minnesota, Florida, North and South Carolina, Virginia and Maryland).

The money stuff

Yes, it’s uncomfortable, but the financial aspect of the home purchase and ongoing costs are a discussion that needs to take place early in the process. And, the discussion should not be “a parent-kid thing,” according to John Graham, co-author of “All in the Family: A Practical Guide to Successful Multigenerational Living.”

He goes on to caution that families should aim to “level the hierarchy of the family,” treating each member as adults. Some of the topics of these conversations should include:

Who will buy the property?
How will title be held? It’s important to understand the different ways of holding title. For instance, what happens to the home upon the death of the primary buyer?
How much will each adult contribute each month to the mortgage payment?
Lists of each family member’s must-haves in a home and those he or she can’t tolerate.

Talk to your attorney to ensure you’ve discussed all the ramifications.

Talk to one another

Some families excel at open communication while others find it challenging. “The biggest factor in successful arrangements is communication,” Donna Butts, executive director of Generations United tells Sue Campbell, author of “The Aging Well Revolution: How new communities and technologies help us live.”

“You need to sit down before someone moves in and talk about expectations and parameters, including how you’ll divide up food, utilities and responsibilities. Another important question to ask is whether the situation is permanent or temporary,” Butts concludes.

Get clear on mutually-agreed upon house rules, preferably before everyone moves in together.

Dysfunctional families may find the thought of multigenerational living intolerable, but for those families who enjoy close ties and harbor respect for one another, it may just be the ideal lifestyle.

Psst: Millennials, come on out – it’s time to buy a home

Quick! What’s the number one reason that so many millennials aren’t getting into the housing market? No-brainer, right? It’s all about that stubborn student loan debt they racked up.

In fact, a recent study by the Federal Reserve claims that the 12 million millennials in their 30s with student loan debt, owe more than those in their 20s. The average student loan balance for the former sits at slightly more than $34,000 and most of you are, or were, grad students, according to U.S. News and World Report.

Your debt and your income and why they matter

The most common reason a borrower is turned down for a mortgage is because he or she has what is known as an unacceptable “debt-to-income” (DTI) ratio. And, millennials are the largest group of would-be homebuyers who walk away from a pre-approval session with a big, fat, rejection.

Lenders naturally want to know that lending you the money to buy a home doesn’t expose them to risk. While there are many types of tests and statistics to help them figure this out, the DTI is the granddaddy of them all.

After you drop off your tax returns, pay stubs, bank statements and all the other documents the underwriter wants to see, he or she will determine your DTI two ways, a so-called front-end and a back-end DTI.

The latter involves dividing the amount you pay for total recurring debt every month by your gross monthly income. To get a mortgage in the past, this figure would typically need to be no higher than 36 percent. We say “typically” because Fannie Mae would consider a DTI of 45 percent under certain circumstances (high credit scores and reserves, for instance).

To determine the front-end DTI ratio, which represents the percentage of your income you will have to put toward housing expenses, the lender will determine the total amount of your expected housing expenses and divide it by your gross monthly (before-tax) income. Hopefully, the result will be no more than 28 percent.

But wait – that’s about to change

So, you used Fannie Mae’s online calculator and figured out that your DTI is 50 percent. Does that mean you should kiss your home-ownership dreams aloha? Nope. Not any longer.

In early June of 2017, Fannie Mae announced that it will now accept a backend DTI of up to 50 percent for loan applications submitted, after July 29 of this year, through its new version of Desktop Underwriter (DU).

Not to get all technical on you, but DU is a software program that uses algorithms to weigh a loan applicant’s risk factors. Some borrower files aren’t DU eligible (for any number of reasons) but many are. Hopefully, you are among the latter because if you require manual underwriting you will fall into that dratted “don’t-lend-money-to-anyone-with-a-DTI-higher-than-36-percent” pile.

Why the change? Are they crazy?

Remember the housing market crash? Of course you do. In its aftermath, an interesting study was published that found that while most borrowers who defaulted on their loans because they were underwater on them and couldn’t make the payments, a small percentage of underwater borrowers – 35 percent, according to a September 2010 University of Chicago Booth School of Business study — simply “walked away” from their homes and their mortgages. These people became known as “strategic defaults,” and further study of them produced surprising results.

Strategic defaulters tended to have high credit scores, didn’t use credit often and when they did, their balances were lower than the other group of underwater borrowers and they rarely exceeded their credit limits. In other words, these folks were the quintessential ideal credit risk.

Fast forward to 2017 and a new Fannie Mae study finds that borrowers with a 50 percent DTI are much better credit risks than previously assumed. The study looked at more than 15 years of statistics and data from borrowers with back-end DTI ratios between 45 and 50 percent. Many of them had decent credit scores and the default rate was quite acceptable.

Steve Holden, Fannie Mae’s VP of single-family analytics said that they were seeing a lot of other factors, aside from a borrower’s DTI ratio, in the data that make this group of borrowers more attractive. These included the borrowers with hefty cash reserves (at least 12 months or more) or a willingness and ability to come in with a higher down payment. And many of these borrowers are millennials, just like you.

So, if you’ve been sitting at the home-buying station, feeling derailed by student loan debt and a less-than-ideal debt-to-income ratio, it’s time to buy your ticket and catch the train before interest rates become the next culprit that keeps you out of your dream home.