In today’s challenging housing market, many younger generations, including millennials and Gen Zers, are turning to their parents or family for financial assistance when it comes to purchasing a home. According to a survey commissioned by Redfin, over a third of prospective homebuyers from these demographics anticipate receiving help with their down payment in the form of a cash gift from their parents or family members. Additionally, some are tapping into their inheritance or opting to reside with relatives to save money towards their home purchase.
This reliance on familial assistance has become increasingly common, with younger generations now twice as likely to seek financial support from their parents compared to just five years ago. Redfin’s data journalist, Dana Anderson, notes that while only 18% of millennials utilized cash gifts for down payments in 2019, this figure rose to 23% by 2023.
The surge in demand for parental assistance can be attributed to the significant rise in home prices experienced during the pandemic-induced housing boom, coupled with soaring mortgage rates. Redfin’s analysis reveals that home prices have surged by almost 40% since the onset of the pandemic, with a 7% increase observed in the past year alone. As of the fourth quarter of the previous year, the median sales price for homes sold across the country stood at $417,700.
Daryl Fairweather, Redfin’s chief economist, emphasizes that the steep escalation in housing costs has prompted many young adults, even those with stable incomes, to seek financial support from their families. A survey conducted by Redfin last year further underscores this trend, revealing that 38% of buyers under 30 utilized either cash gifts or inheritances for their down payments. Fairweather coins the term “nepo-homebuyers” to describe these individuals, drawing attention to the prevalence of familial assistance in the housing market.
The exorbitant cost of homeownership is particularly evident in cities like Los Angeles, where the average home value exceeds $950,000. Even with a 20% down payment, aspiring homeowners would need to come up with nearly $200,000, a daunting figure given the city’s median household income of $76,244. As an alternative, more affordable cities like Austin offer slightly lower home values, yet still require substantial down payments upwards of $100,000 for a 20% down payment, posing a financial challenge for many prospective buyers.
The prevalence of parental assistance in the housing market extends beyond statistical trends to personal anecdotes, with prominent figures like Daryl Fairweather, Redfin’s chief economist, sharing their experiences as “nepo-homebuyers.” Fairweather herself received financial support from her mother for a down payment at the age of 27, a gesture that she acknowledges was instrumental in her ability to afford a home. Reflecting on her own journey, Fairweather emphasizes the challenge posed by continually escalating home prices, which would have otherwise made homeownership a distant goal.
Even seasoned real estate experts like Barbara Corcoran, known for her success as a New York City real estate mogul and Shark Tank investor, advocate for younger individuals to seek parental assistance when purchasing a home. Corcoran acknowledges the practicality of relying on family support, especially in high-cost markets like New York City, where homeownership without familial assistance can be exceedingly difficult.
The trend of parental assistance in the housing market aligns with broader demographic shifts, as highlighted by Eric Finnigan, vice president of demographics at John Burns Research and Consulting. Baby boomers, who continue to wield significant economic influence, often play a pivotal role in facilitating homeownership for their adult children by providing financial assistance. However, this dynamic underscores an inherent disparity, as not all families have the financial means to offer such support.
Fairweather points out that while parental assistance has become increasingly prevalent, it exacerbates existing challenges faced by young Americans who lack access to family wealth. Despite earning respectable incomes, many individuals from less affluent backgrounds find themselves disadvantaged in the pursuit of homeownership, further perpetuating socio-economic disparities. The housing affordability crisis compounds these barriers, making both homeownership and upward mobility increasingly elusive for aspiring homebuyers across the nation.
Ultimately, the American Dream of homeownership intertwined with socio-economic mobility faces significant hurdles in today’s housing market, where familial financial support often determines who can afford to buy a home and who remains excluded from this opportunity.