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, boughther 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 shortterm 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.