Younger generations wrestle with competing goals: Financial flexibility and owning a home

Financial freedom means different things to different people. For younger generations, it often comes down to flexibility in areas like career and travel. Yet, many Gen Z and younger millennials want the stability of owning a home, too. Can you do both?

How do younger generations view homeownership?

With rising home prices and elevated mortgage rates, the challenge of buying a home has pushed many younger would-be homeowners out of the market. In fact, the median age of a first-time buyer in 2023 was 35, according to the National Association of Realtors, above the norm of 28 to 33.

Still, for many in younger generations, the American Dream firmly includes homeownership. Sixty-eight percent of those ages 18 to 34 cited owning a home as a key component of that vision, according to Bankrate’s 2024 Home Affordability Report.

Owning a home isn’t the most essential part of the American Dream for this age group, however. The top spot goes to having a successful career, reported by 69 percent, according to the report.

Their view of homeownership differs significantly from that of older generations, as well. Of those ages 55 and older, 88 percent include owning a home in their American Dream — the most popular aspect for that generation.

What does financial flexibility look like for Gen Z and millennials?

The desire younger generations have to own a home brushes up against another goal: financial flexibility and the desire to spend on travel, entertainment and dining out. Thirty-three percent of Gen Z and 35 percent of millennials are willing to go into debt for travel, specifically, according to Bankrate’s 2024 Discretionary Spending Survey.

Yet, 35 percent of Gen Z and 31 percent of millennials also point to renting instead of owning — or housing affordability — as factors keeping them from feeling financially secure, according to Bankrate’s 2023 Financial Freedom Survey.

The takeaway is something of a paradox. Younger generations believe homeownership is part of the American Dream and lends itself to financial security — but, in buying a home, they might have less in the way of financial flexibility.

Financial flexibility vs. homeownership: Is it one or the other?

You’re not alone if you feel you need to trade off financial flexibility to become a homeowner. From our Home Affordability Report:

• 25 percent of those ages 18 to 34 would move out of state to find an affordable home
• 25 percent would downsize their living space
• 26 percent would take on roommates or live with family members

Of course, saving for a down payment and closing costs requires compromise financially. You might have to delay that dream vacation, for example, to set at least 3 percent aside.

“The good news is that, in the current high interest rate environment, one can find higher yielding savings accounts paying around 5 percent annually,” says Mark Hamrick, senior economic analyst for Bankrate. “So, instead of borrowing and adding to costs, savings can help us to generate returns and to be better prepared for the inevitable expenses that are part of the broader experience of homeownership.”

At today’s interest rates and home prices, the typical monthly mortgage payment is roughly $2,200. That large payment limits how you spend your money month to month. (One upside: You won’t have to worry about rent increases.)

In addition, it’s harder to relocate when you own your home. You’d need to pay the costs to sell, including real estate commissions and sometimes capital gains and/or transfer taxes. If you rent, you can break the lease any time at a relatively lower cost, or potentially sub-let.

There’s also the ongoing cost of upkeep and unexpected repairs. Some homeowners have had to borrow money to pay for the latter, according to a May 2024 Bankrate analysis.

“While homeownership is clearly part of the American Dream, sudden expenses associated with maintenance and repair can generate some financial nightmares if funds aren’t immediately available,” Hamrick says. “This is particularly true for those who are financially fragile, including younger homeowners who are struggling to save.”

Still, even with those financial drains, you’ll build equity as a homeowner. You can use equity later on for any expense, including a travel bucket list or upgrades to your home.

If you get a fixed-rate mortgage, you’ll also hedge against inflation — your principal and interest payment will stay the same for as long as 30 years, even as costs more broadly go up.

It might seem far off to think about, but a home is a wealth tool for your heirs, too.

“It is a fact that homeownership is a well-worn path for wealth creation in our country,” Hamrick says. “My take is that one buys a home primarily for stability and, to some degree, privacy. If one builds equity in the home and can sell making a tidy profit on it, that’s the proverbial icing on the cake.”