What does it take to buy a house? Increasingly, Mom and Dad.
Home buyers are increasingly turning to family members, most often parents, for help buying a house in overpriced and undersupplied markets, reflecting a shift in the way many families finance homeownership.
The share of young home buyers relying on older mortgage co-signers is as high as it has been in at least 30 years, according to a Freddie Mac analysis of its home loans. In 1994, 1.6 percent of first-time home buyers under 35 had a co-borrower age 55 or older. By 2022, after a pandemic-era spike, that figure had more than doubled to 3.7 percent, matching a high set in 2015.
A separate analysis of federal mortgage data set by Redfin suggests the trend in co-signers above 55 years old on younger home buyers’ purchases picked up even more in 2023.
Meanwhile, the share of home buyers in their 20s, 30s and early 40s receiving financial help for a down payment is also rising, after declining for much of the past five years. Overall, 12 percent of home buyers relied on down payment help from friends and family as of April, up from 9 percent last year, according to survey data from the National Association of Realtors. The youngest buyers - ages 25 to 33 - were the most likely to receive familial help, with nearly 1 in 4 receiving cash gifts or loans toward their purchases.
“The housing market is an incredibly unaffordable place right now,” said Daryl Fairweather, chief economist at Redfin, a national real estate brokerage. “People who are succeeding are coming in with a lot of cash and large down payments - and often, family support.”
The trend of more younger home buyers, who are more often first-timers, seeking parental help to reach a middle-class milestone is just the latest sign of growing disparities between younger generations and older ones who have had more opportunities over the past 20 years to lock in cheaper mortgages. And it’s happening at a time when more young people are living at home and mortgage rates have hit 20-year highs.
As home buying becomes increasingly out of reach to first-timers, Realtors confirm that more parents are stepping in to help, sometimes taking out loans against their existing homes to fund their children’s. More parents are also getting involved in the home-buying process from the beginning, considering joint purchases less of a handout to their children and more of a long-term family investment, brokers said.
Eve Brown, who lives in Cincinnati and works two jobs, received a $16,000 down payment from her mother, a retired accountant. And when her income wasn’t high enough to quality for the $92,000 mortgage, Brown’s mother co-signed her loan as well, giving the 42-year-old her first inroad into the housing market.
“I always wanted to buy a home, and I really didn’t want to have my parents’ help,” Brown said. “But it got to the point where it was just obviously better to buy - and no way I could do it on my own.”
The housing market has slowed precipitously since the Federal Reserve began raising interest rates two years ago. Mortgage costs have gone from all-time lows of about 2.6 percent to more than 7 percent, making it several times more costly to finance a home purchase. The last time borrowing costs were this high was in the early 2000s, a generation ago.
At the same time, home prices, which spiked during the pandemic, remain high with the median at $420,800, according to census data. The result is an increasingly unaffordable market that isn’t likely to improve any time soon: Goldman Sachs this month said it expects home values to rise another 4.3 percent in 2024, straining a housing market already hovering at record-low affordability.
José Matos, a guide at a Miami art museum, is searching for a home with his mother. The 24-year-old, who still lives with his parents, says they have come up with an arrangement: His parents will cover a $50,000 down payment and co-sign the mortgage, as long as Matos makes monthly payments.
His mother, Lizet Rodriguez, who emigrated from the Dominican Republic in 2014, bought her first home at 43, which gave her an “intense sense of joy and security,” she said. Now she wants to pass on this milestone to her children.
“As a mother, I want to do all I can to give my children a better future,” said Rodriguez, 61, who runs a short-term rental business in Miami. “We are first-generation immigrants in this country, and we have to stick together and help each other if we want to get ahead.”
Matos is among a growing group of 20- and 30-somethings who are moving straight from their childhood bedrooms into their first homes. Roughly 1 in 3 young adults are living with their parents, often to save money, an arrangement that picked up during the pandemic and has continued, according to a Pew Research Center analysis of census data.
That shift reflects a new economic reality in which parents are playing a bigger role in supporting their children financially, well into adulthood. Some 44 percent of adults in their 20s and early 30s said they received financial help from their parents in the past year, most often for household expenses like groceries or utilities, according to a January report by Pew.
Increasingly, those financial ties to Mom and Dad are stretching into the home-buying process and beyond. Nearly 1 in 5 young adults said their parents have helped with rent or mortgage payments in the past year.
“These days it almost feels like, ‘Duh, I have to use my parents’ money, there’s no other option,’” said Kristina Modares, a real estate agent in Austin who works primarily with first-time home buyers. “It’s definitely harder for younger people to buy right now, and the boomer generation has a lot more money than Millennials or Gen Z has.”
A record 16 percent of her firm’s clients “partnered” with a friend or relative to purchase a home last year, up from 7 percent the year before, Modares said.
Hayden Smith, who works for a tech start-up in Camarillo, Calif., was hesitant to accept help from his parents when they first offered it. He had saved up for a down payment by living with them during the pandemic and finally made enough to comfortably cover monthly expenses. But with home prices and interest rates steadily rising in the past couple of years, the 29-year-old felt his purchasing power slip away.
“Part of me wanted to say, ‘No, I don’t want to take it,’” said Smith, who bought a $420,000 condo this past summer. “But I don’t see things getting easier or better or more attainable in the future. It sounds bad to say out loud, but I finally thought, ‘I may as well take what I can now, before the market gets even worse.’”
The increased reliance on parental help is widening the divide between those who can afford a house and those who can’t. Parents who own homes are more likely to have the resources to help their adult children, reinforcing the crucial role of homeownership in lifting long-term wealth. As a result, economists say it has become even harder for first-time home buyers without familial help to break into the market.
“The bigger problem is that young Americans who don’t have family money are often shut out of homeownership,” Fairweather of Redfin wrote in a recent report. “They don’t have a pot of family money to dip into. This contributes to wealth inequality and often prevents young people from gaining economic ground on their peers who come from more privileged backgrounds.”
In the past decade, homeowners have seen their equity balloon by more than $100,000 on average, giving them 40 times the wealth of renters, according to an analysis by NAR. Some parents have been able to tap into that extra wealth - by borrowing against their homes at low interest rates, to help finance their children’s purchases at lower rates than banks.
In Orange County, Calif., Khang Nguyen and his wife bought their first home last year for $1.2 million. They were able to put down nearly 50 percent as a down payment, thanks to a $325,000 loan from his parents, who had taken out a home-equity line of credit a few years ago when interest rates were low.
Now Nguyen makes two monthly payments each month: $4,700 to the bank and $5,000 to his parents.
“I was prepared to take out a 75 percent mortgage, but my folks were like, ‘Actually, why don’t you use this money and avoid the interest,’” said Khang, 36, a physician. “Obviously it’s a challenging market here in Southern California, but having access to capital from family at essentially no cost is really helpful.”
The increasing role of parents in the housing market is a precursor to what economists say will be a massive generational transfer of wealth in the coming years, as older Americans leave behind trillions to their heirs. Some of that is already making its way into the housing market.
Emily King, 30, and her husband are preparing to buy their first home in Akron, Ohio, thanks to a $17,000 gift from King’s mother, who inherited the funds from her father. Without it, King says there’s no way they would have been able to buy and fix up a $260,000 house.
King, a bakery manager, and her husband, who works for an electronics distributor, make about $115,000 a year. Still, she says, the $2,200 monthly mortgage payments will be a stretch for their budget after the $1,500 a month they spend on child care for their two young children.
“My husband and I never thought we could buy a house, especially with day care. It’s so wildly expensive and impossible to save any money,” she said. “The only reason we were able to afford this is because of the state it’s in - no AC, no dishwasher, with a septic tank and a well. And because of my mom.”
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