Welcome to the ‘nepo’ real estate market: 40% of home buyers under 30 receive family money to cover the down payment

Redfin conducted a survey of recently moved businesses earlier this year and found that 38% of more than 500 buyers under the age of 30 used a cash gift from a family member or inheritance to pay for a down payment, making them what Fairweather calls, “nepo-homebuyers” (clearly a game of nepotism: giving power/favours to relatives), which I had recently written about as a Forbes taxpayer.

“I think the reason it matters so much in this housing market is because of how expensive housing has become,” Fairweather said. Fortune. “It seems like the only way to get your foot in the door of the housing market is to have some help” or have an exceptionally high income, especially at a younger age, she added.

Housing affordability is deteriorating, and it’s worse now than it was at the height of the housing bubble, following a more than 40% increase in home prices along with mortgage rates that have more than doubled. For many, owning a home is becoming out of reach. If you were looking to buy in California, where the median home value is $741,789, to pay a 20% down payment you would need $148,358. Let’s say you want to buy in Texas, which is much more affordable than California, with a median home value of $301,763, you would still need $60,353 for a 20% down payment. For some, that’s just not feasible and doesn’t take into account what would be a substantially higher monthly mortgage payment now that mortgage rates have risen again.

“If you’re trying to get into real estate, and because of how high interest rates are, because of how high home prices are, you have to be like the exception to the rule in terms of your income to get in. to the real estate market. market if you don’t come with cash,” Fairweather said, and that cash usually comes from parents or other family members.

At the same time, the income needed to buy an initial home as a first-time homebuyer is higher than it used to be, rising 13% in the past year alone, Fairweather explained, citing a recent Redfin analysis. It is clear that family money can make a difference. And the sooner you can buy a home, the more equity you can build, which, say, in the case of a starter home, can help you buy your next home, maybe forever.

“It really becomes a kind of snowball effect, where the people who get help, the earliest, end up accumulating even more wealth, and it further solidifies that divide between the haves and have-nots and perpetuates the inequality of intergenerational wealth. Fairweather said.

Fairweather was also a nepo-homebuyer. In 2015, when she was 27, her mother sold her condo and gave Fairweather the money for a down payment so she could own a home. Fairweather’s mother lived with her until she accumulated enough capital to buy him a house.

“If it hadn’t been for her, it would have taken me years to be able to afford a home of my own,” Fairweather said, later adding that “year after year, the prices kept going up.”

His mother was a real estate agent for some time and had always been an advocate for homeownership, Fairweather said. Her mother and her father bought her house in the 1980s and had a hard time doing so because their offers were constantly turned down. His father is black, and it wasn’t until his mother, who is white, went to the lists alone that they accepted his offer, he said.

Children whose parents own homes are more likely to become homeowners themselves, Fairweather explained in his Forbes history, citing academic research and a 2021 Redfin survey that found that 79% of current homeowners had a parent who owned their home. “Whether your parents were able to buy a home or not is tied to past inequalities, and those inequalities persist because owning parents is so important,” Fairweather said.

Homeowner parents can tap into the equity they’ve built up, as a source of wealth, at any time to send their kids to college or give them the money they need to buy a home, Fairweather said. With the cost of owning a home constantly rising and interest rates so high, many people cannot afford the monthly mortgage payment. That is, unless they put in a lot of money, which in some cases they get from their parents. However, high income earners and cash buyers are the exception.

“Everybody else, which is probably the majority of people, has to look to family for help to get into the real estate market,” Fairweather said.

We are at a point where you practically need family money to buy a house, which in itself is a testament to how unaffordable our real estate market has become. But, on the other hand, it is clear that those without family money to fall back on are effectively being shut out of the market.

“In America, we’d like to think of ourselves as a place where anyone can make it, like it doesn’t matter where you were born or what family you were born into, but it’s less and less so. “, Fairweather said, “because of how expensive it is to own a home and the role it plays in terms of wealth accumulation.”