For Jessica Yourdon, a 36-year-old social media coordinator from San Antonio, the wedding last fall brought the promise of their first home. But with the pressure to pay for both a wedding and a home at the same time, Yourdon and her husband had to rely on their parents' financial help to cover the down payment on their new three-bedroom ranch – a move some pundits have taken saying is becoming more common as house prices skyrocket across the country.

"It was really hard to accept that they wanted to give me money and said, 'You are our daughter. We love you and it's our job to take care of you, '"Yourdon said. "When the time came, my husband and I were speechless when she said she wanted to do this."

Yourdon wasn't the first in her family to receive financial aid to buy a house recently. Her brother also received money to pay a down payment on a house, which Yourdon described as one of the biggest hurdles facing young adults trying to become a homeowner.

Because millennials are struggling with rising home prices due to high demand and limited supply, they buy homes less frequently and later than generations before them.

In addition to becoming homeowners at lower prices, millennials are more likely to turn to others for help compared to previous generations. A 2018 study by financial services firm Legal & General found that 43 percent of people under 35 got help from parents or family members when buying a home.

"It shows that there is a belief and commitment to the real estate market and parents are willing to make a meaningful gift for their child to buy in the market," said Melissa Cohn, mortgage lender at William Raveis Mortgage. "You think it's a safe investment."

According to the latest S&P CoreLogic Case-Shiller Index, home prices were 16.6 percent higher last May than last year, the largest increase in 30 years. Smaller cities in particular have seen explosive growth, with people moving away from the coasts and into smaller metropolitan areas more often – driving up home prices.

Lock out

A July 2018 report by the Washington, DC-based Urban Institute found that millennials' ownership rates averaged 8 percentage points lower than baby boomers of the same age. That gap is even wider among minority households, whose home ownership rate was 15 percentage points lower than that of white millennials.

Millennials also face disproportionately high student loan debt and, on average, marry later in life, delaying home ownership. They also face high rental costs, which make the promise of home ownership unattainable, according to the Urban Institute report.

Robert Dietz, chief economist for the National Association of Home Builders, said millennials are having trouble buying homes not only because of rising prices – in part because of the increased cost of building materials like wood – but also because of exclusive zoning laws that prohibit the construction of large properties about small starter houses.

Those laws often come in the form of minimum lot sizes, Dietz said, which makes it harder to build small homes, which often appeal to millennial buyers looking to make their first home purchase.

"Communities often use minimum lot size requirements as a NIMBY-is tool to reduce development effort," said Dietz, using an acronym for the phrase "not in my backyard". "The result is that when they have a limited number of lots because they need to be bigger, builders are more likely to build the bigger houses overcrowded."

The effects of these guidelines, according to Dietz, have made "entry-level apartments, especially apartments intended for first-time buyers and first-generation home buyers, more difficult to build".

Wealth accumulation

But while many millennials struggle to break into the housing market and pay off their debts, those born to the baby boom generation – around 57 to 75 years old – have amassed money for years, giving them control over 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 of the same age – 21 percent versus 4.6 percent of millennials.

How do the baby boomers ensure the longevity of their income? By giving it to their millennial children.

"You think of the wealth the boomers have amassed and that kind of void. We see more and more parents who want to help their children – their adult children – financially, [to] financially, "said Angie O'Leary, Head of Wealth Planning at RBC Wealth Management. "And some of the ways you can do that is by helping them with real estate."

According to O'Leary, the baby boomers control a large chunk of the country's wealth for three main reasons: They have a sizable amount of money in retirement plans, have invested heavily in the stock market over the past 30 to 35 years, and have bought bigger homes with more cash value. These factors put many baby boomers in a solid financial position to pass their fortunes on to their children, O'Leary said.

National trend

Real estate agents from New York to Nashville, Tennessee say that while they have always worked with clients whose parents gave them money to pay a down payment or to win a bidding war, they have seen this more frequently in recent years. As the pandemic spiraled the housing market, with property prices now at historically high levels, some believe this trend will continue.

Caroline Blankfort, a Nashville-based real estate agent, has worked with at least 15 clients in the past three years whose parents gave them money to buy a home. Blankfort, who also worked as an agent in New York, said she saw these gifts more often in Nashville, where the market is becoming more competitive as the city grows in popularity.

Parents often give money to their children to pay a down payment or start up costs for a home, Blankfort said.

"It's still a bit of change that some people don't plan when they work and save," said Blankfort. "And then when it's time to buy a house, it's like, 'Oh, wait, wait, I'm not ready for it yet.'"

Cohn, the mortgage lender at William Raveis Mortgage, has been in the industry for nearly 40 years and said the number of baby boomer gifts has increased significantly in recent years. Some of these gifts, Cohn said, have exceeded $ 1 million, although the specific amounts vary from family to family.

Cohn said she expected these types of gifts to rise as long as house prices stay high. The only factor that could potentially deter parents from giving money to their children would be if gift tax laws changed. The annual lockout amount for 2021 is $ 15,000, which means an individual will not have to pay tax if the gift is that amount or less. If the amount is over $ 15,000, the donor must file a gift tax return with the Internal Revenue Service.

"I think the only way they would opt out would be if they were no longer able to give a tax-free gift," said Cohn. "If that doesn't change, I see no reason why it should change."

source https://seapointrealtors.com/2021/08/01/homebuyers-turn-to-baby-boomer-parents-to-help-with-purchases/

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