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The Downpayment Problem

Part of the series: Affordability as a Multi-Generational Market Risk — How Today’s Affordability Crunch May Reshape Homeownership Expectations and the Mortgage Market for Generations to come​

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Written by: Rachel Silverio, Manager at PPG

For years the down payment has been the biggest hurdle separating renters from homeownership. Now, a growing number of younger Americans are no longer even attempting to clear it. Fueled by generational pessimism, this shift is reshaping how they spend and save. This has implications that extend beyond individual financial health and may ultimately have ramifications for the mortgage market as much as the affordability gap itself.

The Sentiment Shift

While this pessimism is a critical current problem, it didn’t emerge in a vacuum. Affordability has always been a hurdle to homeownership, but over the past five to six years the gap has widened sharply — turning what was once a familiar challenge into an acute, hockey-stick problem that has put the dream out of reach for many.

Homeownership affordability is something that many Americans and political leadership acknowledge is a problem. In fact, a poll done by the National Association of Home Builders in 2025 indicated that four out of five Americans agreed that housing affordability is a concern in their area.

100%   -

90%   -

80%   -

70%   -

60%   -

67%

48%

50%   -

40%   -

30%   -

20%   -

10%   -

2018

2023

-

% of millennial renters reporting not saving anything for a downpayment

The Doom Loop

​A 2025 working paper from Northwestern University and the University of Chicago examining the life-cycle consequences of declining housing affordability finds that lower-wealth renters who have abandoned the homeownership goal spend more, work less, and take on riskier investments than homeowners with equivalent assets (Lee & Yoo, 2025).

The mechanism is straightforward: homeownership can act as a forcing function for a particular kind of financial discipline such as consistent saving, stable employment, conservative risk tolerance. Once households stop expecting to own, the reason to maintain those behaviors disappears with it. Therefore, the behaviors that would build a mortgage-ready borrower are precisely what erodes once households disengage from the goal entirely.

34%

of Gen Z respondants indicated that owning a home seems financially out of reach at any point in their life

Possible Mortgage Market Impact

Broadly speaking, a generation that stops saving for a downpayment does not automatically restart when prices stabilize, and is unlikely to be ready when it does. This is the heart of the doom loop: once savings habits, employment patterns, and ownership expectations have shifted, they don’t simply reverse on their own — the trend is self-reinforcing rather than self-correcting.

The longer that pattern holds, the more structural the demand gap becomes, and the thinner the pipeline of self-funded, mortgage-ready first-time buyers grows.

And this issue is impacting generations outside of Millennials. Currently, Gen Z represents just 3% of home buyers, but as the oldest Gen Zs start to hit 30, that number is going to matter more and more.  The real risk isn’t a single cohort sitting out the market — it’s that today’s affordability crunch is quietly resetting how an entire generation, and the one behind it, plans, saves, and thinks about ownership. If that reset holds, the consequences for housing demand, household wealth formation, and the mortgage pipeline could outlast any near-term improvement in affordability itself.

This piece is part of the series: Affordability as a Multi-Generational Market Risk — How Today’s Affordability Crunch May Reshape Homeownership Expectations and the Mortgage Market for a Generation

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Questions? Please contact Martha-Rosalind "MR" Stainton and Rachel Antonia Silverio

Sources Cited

© 2024 by Potomac Point Group

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