A “Striking” Trend: Crypto Is Connecting Younger Generations With Mortgages

U.S. Treasury economists have found what they call a “striking” trend. People of modest incomes who live in places where crypto is popular are getting mortgages.

In short, they found that ordinary people (those in households making under $50K yearly) are using crypto gains to save for down payments. In a time when the median price of a home for sale is over $400K, young people who weren’t born with wealth have to be creative. How’s this working out for them?  

So Far, So Good

The economists identified “high-crypto” zip codes as areas where 6%+ of households reported cryptocurrency transactions on federal taxes. (The researchers refer to average or “mid-crypto” areas as zip codes where 2-6% of households are reporting crypto sales on their tax returns.)

The association between using crypto and higher rates of mortgage borrowing is “especially striking among low-income households” in these areas, they stated. By striking, they’re talking more than 250%.

Yes, that’s striking.

These same areas have higher debt balances. Including, of course, mortgages. In fact, people in areas of high crypto activity have much higher mortgage debts overall than people in lower- or even middle-income areas where there’s less interest in crypto. 

The new report suggests that “crypto households” be monitored so economists understand how they’ll behave in a downturn. The report also thinks younger households need specific attention. Cryptoassets, the report notes, are “more popular among younger investors.”

But for now, the report says, “delinquency rates remain relatively low.”

Crunching the Numbers

The researchers looked at tax and mortgage data spanning four years: Jan. 2020 – Jan. 2024.

Their analysis shows:

• As households acquire cryptoassets, they take out more loans and larger loans. This effect appears strongest in households with lower earnings.

• People of modest means in high-crypto metros are increasingly becoming mortgage borrowers.

• Selling crypto may give people the ability to take out bigger loans and make bigger down payments.

• Thus, modest earners in the United States have found opportunities to turn their crypto investments into homeownership.

The report posits that the growing interest in building household wealth through cryptoassets “could present a financial stability risk.” It bases this assumption on the relative volatility in the crypto market.

But if people are able to handle larger down payments, we should observe, that could offset risk, too.

Reshaping Household Finances

After Covid 19 first hit, cryptoassets increased in popularity. Before the pandemic, adoption was well under 2% of the U.S. population. By 2021, that percentage had grown to more than 4%. Crypto assets had turned into a substantial factor in U.S. household finances.

The trend began mainly in and around the large coastal cities. Young people, especially, got on board.

Today, bitcoin and other cryptoassets are the top picks for Gen Z investors. More than half of this group — the youngest generation of home seekers — owns crypto. Among Gen X investors, who are in their 40s and 50s today, adoption is not far behind, at around 40%. (For people in their 60s and up, adoption is much lower.)

Gen Z households have been exploring all things digital their entire lives. They’ve connected to digital assets through platforms that let them build accounts out of steady, small-dollar investments.

The ones who buy homes with crypto gains are savvy investors. We know they are, because paying with crypto gains takes time and planning. Investors first must wait to see significant profits. And then, they usually have to withdraw their profits — triggering a taxable event —  and accumulate value in dollars to amass enough cash for a down payment.

So far, neither Fannie Mae nor Freddie Mac lets these investors depend on their cryptoassets in the mortgage application process. Nor do conventional lenders count crypto holdings when weighing an applicant’s debts and assets. Could a future policy shift be fair play? After all, the baby boomer generation now controls half of U.S. real estate deeds.

Fractional Real Estate Tokens

Another promising route to connect young investors to their own real estate is shaping up, Blocksquare CEO Denis Petrovcic told Cointelegraph.com. It’s called the fractionalized real estate token. And Petrovcic says it’s a reason for hope.

With this method, someone who lacks the funds to buy a home can buy a portion of ownership. It’s not the answer to the housing crisis, Petrovcic acknowledges. But it creates openings for people longing to become first-time buyers.

Imagine a group of young renters co-owning a home, and renting it out together. They would split the proceeds among themselves, and share in the home equity they build together. Over time, they’d save enough to buy their own homes, whether solo or as tenants in common. Tokens on the Ethereum blockchain can turn this concept into a reality. Just watch. In the years ahead, tokenized real-world assets (RWAs) are likely to win acceptance from institutional lenders.

So, crypto is a game changer for Gen Z. But, you may ask, is this sustainable?

Looking Ahead

The financial news outlet CNBC recently quoted Ted Jenkin, an Atlanta-based financial planner. According to Jenkin, younger investors can sustainably make cryptoassets into a component of their finances. As long as they embrace due diligence.

Because of the well-known volatility of cryptoassets, investors should take care and not invest what they can’t afford to lose. Jenkin also urges investors to think of their crypto holdings as long-term investments and hang onto them for a decade or more.  

Makes sense, on the whole. Still, it’s unlikely that young buyers will delay using crypto windfalls for down payments. Research shows that households are much more willing to liquidate and spend their crypto profits, than to tap into stock gains from their retirement accounts. And of course, many people — the young and the old alike — would prefer not to wait a decade before acquiring a deed.

At the end of the day, when a windfall does materialize, shifting that value from a volatile asset into real estate is arguably a sensible, prudent strategy.

Note: This discussion is not financial advice. We urge readers to consult reputable financial advisers, ones with experience in cryptoassets, for guidance tailored to their own situations and goals.