For Jessica Yourdon, a 36-year-old social media coordinator based in San Antonio, getting married last fall brought the promise of first-time homeownership. But with the pressure of paying for both a wedding and a home at the same time, Yourdon and her husband found herself relying on the financial help of her parents to cover the down payment on her new three-bedroom ranch — a move some experts say is becoming increasingly common as home prices skyrocket nationwide.
“It was really hard to accept when they wanted to give me money, and they’re like, ‘You’re our daughter. We love you, and it is our job to take care of you,’” Yourdon said. “Once it got to that point, I think when she said she wanted to do that, my husband and I were both speechless.”
Yourdon was not the first in her family to receive financial help for a recent home purchase. Her brother was also given money to pay for a down payment on a house, which Yourdon described as one of the biggest hurdles facing younger adults looking to become homeowners.
As millennials tackle rising home prices due to high demand and limited supply, they are purchasing homes less frequently and later than generations before them.
Millennials are not only becoming homeowners at lower rates, but they are also more commonly turning to others for help compared to prior generations. A 2018 study from financial services company Legal & General found that 43 percent of people under 35 received help from parents or family members when purchasing a home.
“It shows that there’s a belief and a commitment to the real estate market and parents willing to make a significant gift to their child to purchase in the market,” said Melissa Cohn, a mortgage banker at William Raveis Mortgage. “They feel that that’s a secure investment.”
According to the most recent S&P CoreLogic Case-Shiller Index, home prices were 16.6 percent higher this past May than the year prior, the largest gain in 30 years. Smaller cities in particular have begun to see explosive growth, with people more frequently moving away from the coasts and into smaller metropolitan areas — and in turn driving up home prices.
Shut out
A July 2018 report from the Washington, D.C., based Urban Institute found that on average the rate of millennial homeownership was 8 percentage points lower than for baby boomers when they were the same age. This gap is even wider for minority households, whose rate of homeownership was found to be 15 percentage points lower than white millennials.
Millennials are also saddled with disproportionately high rates of student loan debt and are, on average, getting married later in life, thereby delaying homeownership. They are also facing high rent costs that put the promise of owning a home out of reach, according to the Urban Institute’s report.
Robert Dietz, chief economist for the National Association of Home Builders, said millennials are not only struggling to purchase homes because of rising prices — due in part to the increased cost of building materials like lumber — but also because of exclusionary zoning laws that prioritize the building of large properties over small starter homes.
These laws often come in the form of minimum lot sizes, Dietz said, making it harder to build small homes that often appeal to millennial buyers looking to make their first home purchase.
“Communities will often use minimum lot size requirements as a NIMBY-ist tool to reduce the amount of development,” Dietz said, using an acronym for the phrase “not in my backyard.” “The result then, if you’ve got a limited amount of lots because you’re requiring those lots to be larger, builders are more likely to build the larger homes first. So it’s the smaller, more entry-level home that tends to get crowded out.”
The impact of these policies, Dietz said, has made it so “entry-level housing, particularly housing intended for first-time and first-generation homebuyers, has been more difficult to build.”
Wealth accumulation
But as many millennials struggle to break into the housing market and pay off debt, those born in the baby boom generation — around 57 to 75 years old — have been accumulating money for years, putting them in control of 53 percent of the country’s total wealth. Baby boomers also, on average, have a far larger share of the country’s wealth than millennials when they were the same age — 21 percent compared to the millennials’ 4.6 percent.
What is one way baby boomers are ensuring the longevity of their income? By gifting it to their millennial children.
“You think about the wealth the boomers have accumulated and that kind of gap. We see more and more parents wanting to help their kids — their adult children — financially, [to] get financially set,” said Angie O’Leary, head of wealth planning at RBC Wealth Management. “And some of the ways that they’re doing that is through helping them with real estate.”
According to O’Leary, baby boomers control so much of the country’s wealth for three main reasons: They have a significant amount of money in retirement plans, invested heavily in the stock market over the past 30 to 35 years and bought bigger homes with greater value. These factors put many baby boomers in a sound enough financial position to pass down their wealth to their children, O’Leary said.
National trend
Real estate agents from New York to Nashville, Tennessee, say while they have always worked with clients whose parents gave them money to make a down payment or win a bidding war, they have been seeing it more frequently in recent years. As the pandemic sent the housing market spiraling, with home prices now at historically high levels, some say they expect this trend to continue.
Caroline Blankfort, a real estate agent based in Nashville, has worked with at least 15 clients in the past three years whose parents have given them money to purchase a home. Blankfort, who also worked as an agent in New York, said she has seen these gifts more frequently in Nashville, where the market is becoming increasingly competitive as the city grows in popularity.
Often, parents give their children money to pay a down payment or starter cost on a home, Blankfort said.
“It still is a chunk of change that some people don’t plan for when they’re working and saving,” Blankfort said. “And then when the time comes to buy a house, it’s like, ‘Oh, wait, hold on, I’m not ready for this.’”
Cohn, the mortgage banker with William Raveis Mortgage, has been in the industry for nearly 40 years and said she has seen the number of baby boomer gifts rise significantly over the past few. Some of these gifts, Cohn said, have exceeded $1 million, though the specific amounts vary from family to family.
Cohn said she expects these kinds of gifts to rise as long as housing prices remain high. The only factor that could potentially deter parents from giving their children money, she said, would be if gift tax laws change. The 2021 annual exclusion amount is $15,000, meaning a person will not face taxes if the gift is that amount or lower. If the amount is over $15,000, the person giving the gift must file a gift tax return with the Internal Revenue Service.
“I think the only way you would see them decline would be if they were no longer able to make a gift that would be tax-free,” Cohn said. “If that doesn’t change, I don’t see any reason why it should change.”
