Gen Z, Millennials Don’t Want to Buy Starter Homes

A growing number of Gen Z and millennial renters are rejecting the traditional idea of buying a modest “starter home” as a first step in building wealth.

Instead, many are holding out to purchase a more permanent residence that better suits their long-term needs, marking a generational shift in how younger Americans think about homeownership.

Why It Matters

The move away from starter homes is reshaping demand in the real estate market. Builders who once targeted first-time buyers with lower-cost, smaller homes may now need to adjust their strategies.

With affordability concerns and mortgage rates still high, more young adults are skipping that initial step entirely and waiting longer to buy homes that they plan to stay in.

What to Know

According to the BMO Real Financial Progress Index, 66 percent of Gen Z renters and 61 percent of Millennial renters agree that buying a starter home and upgrading later “makes no sense anymore.”

The data suggests that young adults no longer view homeownership as a multi-stage process, and they are skeptical of the financial value in purchasing a smaller home only to sell and move again in a few years.

High home prices, low inventory, and elevated interest rates have made it difficult for younger generations to follow the traditional housing path.

At the same time, many entry-level homes that once served as starter options have been bought by investors or priced out of reach. In places where starter homes are available, they may require major renovations or be located far from work and amenities.

The survey found 69 percent of Gen Z renters and 74 percent of Millennial renters who intend to buy a house are waiting for interest rates to drop before making a purchase decision.

With economic uncertainty still weighing on younger buyers, the long view may be the only one they’re willing to take.

“When you take all these factors into consideration, it’s easy to see why some from both generations are scrapping the whole starter house idea and waiting to make a purchase on the home they want to keep,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.

Roughly 61 percent of Americans say they feel less confident they will own a home in their lifetime than they were five years ago, according to BMO.

For non-homeowners with children, 57 percent of those polled by BMO say that saving for education or childcare is a more important financial priority than buying a house. Gen Z has also prioritized buying a car (50 percent) while millennials are looking to save for retirement (54 percent).

What People Are Saying

Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: “Millennials and Gen Z are opposed to starter homes, because that term truly no longer exist. The mere concept of ‘starter home’ is something that is much less affordable and can now be seen as a home they will stay in for a longer term. With rates being higher than years past along with much higher housing costs, the concept of ‘the starter home’ will go the way of the dinosaur.”

Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek: “They want to, they can’t. They can’t afford it.”

Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “For decades, the concept of a starter home made sense to younger Americans. You could purchase a smaller property before having children, make payments that were potentially less than renting, and then have a home you could sell to fund a new property when the time was right. However, in the current real estate market, higher home prices and mortgage rates have produced monthly payments above renting costs, down payments are an issue for many given the accelerated cost of living, and many millennials and Gen Z are putting off those major life milestones in general.”

Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek: “This homebuying trend is representative of generational shifts in how we work, what we value in life, and our lived experiences. Gen Z and Millennials have spent less time working in an office and more time working from home, they are getting married and starting families later, they tend to value experiences over possessions, and they came of age through multiple housing and interest rate markets. The idea of the starter home may not make sense given these trends.”

“On average, these generations are having kids almost a decade later than their grandparents. By that time, they are ready for their forever home. They have also seen low interest rates and multiple housing market crashes, so many are waiting on the sidelines for the next downturn to find a more affordable price and mortgage rate.”

What’s Next

The starter home may become a relic unless affordability improves. Builders and lenders may need to shift toward products that support long-term ownership from the start.

“Down the line, younger generations will put off buying homes much longer and be resigned to renting,” Thompson said. “This has more than just an impact on housing, this will have impacts on marriage rates and birth rates as people will not only hold off home purchases, but also delay starting families.”