The bank of mom and dad: Parents are helping their adult children become homeowners
The bank of mom and dad is the gift that keeps on giving. More than one-third of potential young homebuyers said they plan to use family money to cover the down payment on their home, according to a report from Redfin.
Rising housing prices and mortgages have muddied the American dream of home ownership, especially for young adults. But some Gen Z and Millennials with family money are tapping into their generational wealth to purchase their first homes. An analysis from Redfin found that 16% of Gen Z and Millennials are using an inheritance to fund their down payment and 36% said they are using a cash gift from family members.
Home prices in the U.S. increased about 40% from pre-pandemic costs, and they rose 7% in the last year alone, Redfin reported.
“Nepo-homebuyers have a growing advantage over first-generation homebuyers. Because housing costs have soared so much, many young adults with family money get help from mom and dad even when they have jobs and earn a perfectly respectable income,” Redfin Chief Economist Daryl Fairweather wrote.
Fairweather added, “The bigger problem is that young Americans who don’t have family money are often shut out of homeownership... This contributes to wealth inequality and often prevents young people from gaining economic ground on their peers who come from more privileged backgrounds.”
Young adults are moving back in with the rents
Research from the Berkley Institute for Young Americans found that people younger than 44 are purchasing homes at a far slower rate than those aged 60 and older did at the same age. A growing number of young adults are moving back in with their parents to save money.
Rising inflation, increasing student debt and unmanageable housing and rent prices are some indicators of why young people have chosen to live with their parents.
Census Bureau data reveals that more than half of young adult men and women ages 18 to 24 are living at home. That includes young adults living in college dorms; typically students housed in dormitories live with their parents between semesters.
According to a report from the Census Bureau, "Young adults are experiencing the traditional markers of adulthood, such as leaving the parental home, starting a family, and establishing stable careers, later in life than previous generations did."
What makes home ownership unattainable for young adults?
Nearly half of Gen Z and Millennials surveyed by Redfin said they're unlikely to purchase a home soon because the market is too expensive. An additional one-third of respondents said they're unable to save for a down payment. In many cases, adults are turning to their parents for financial support.
"The American Dream is just as much about class mobility as it is the home with a white-picket fence, and the housing affordability crisis has made both elements of the dream harder to attain," Fairweather wrote.