MILLENNIAL HOMEBUYERS EXPECT PARENTS TO HELP WITH HOME PURCHASE
Content originally posted and shared with permission by ValueInsured
This may be what the gold rush felt like, except it is now a rush to buy homes. We keep hearing housing demand is high, inventory is tight. Some headlines even describe homebuyers as "panicking" to rush to buy homes, or rushing to lock in low rates. Yes, if you have been paying attention to recent reports, you may have seen the word “rush” used frequently when describing today’s home buying activities.
However, without existing home equity from a previous sale, where are first-time homebuyers supposed to find the funds for a down payment in this heated housing market? Should they wait to save for another five to ten years to buy when mortgage interest rates could be double what they are today? The Federal Reserve just raised interest rates for the second time in three months yesterday, and signed more hikes to come. Experts are in consensus the U.S. economy is headed for accelerated inflation, which will drive up housing prices, along with all other living expenses, making it harder for prospective homebuyers to save for their down payment.
While many first-time home buying hopefuls wonder how they can save enough to buy at today’s sky-high prices, some may at the same time notice their own parents are selling. Baby Boomers are downsizing, and many are making bank.
According to ValueInsured’s latest quarterly Modern Homebuyer Survey:
- 55% of Baby Boomers who plan to buy a new home in the next two years are also planning to downsize
- 70% of Baby Boomers surveyed plan to spend less than $250,000 on their next home purchase
- 42% of Baby Boomers surveyed plan to spend less than $150,000 on their next home purchase
- By comparison, only 21% Millennials and 24% Gen Xers plan to spend under $150,000 on their next home purchase
Even among Baby Boomers who do not plan to sell and downsize, many may be cashing in on their more sizable home equity wealth thanks to rapidly growing home value. So begs the question: Should Boomer parents help their adult children buy their first home with their home equity wealth or proceeds from downsizing?
That is not a right or wrong question for a third party to answer. However, what we do know is this: Baby Boomers have been generous with their Millennial children in terms of assisting with their housing needs. Trulia estimates nearly 40% of Millennials live in their parents’ home in December 2016. The Pew Center put their latest figure at 32% in 2014.
Perhaps more telling, Millennials expect their parents to help them financially with purchasing a home. According to ValueInsured’s survey, 69% of Millennials believed it is a parent’s natural responsibility to help their adult children buy a home. More importantly, 42% of the Baby Boomers surveyed agreed. Nearly 4 in 10 Baby Boomer parents (37%) said they have helped or will help their adult children buy a home.
In the midst of rising home prices, more prospective first-time homebuyers are at risk of getting priced out. The good news is there are more federal and local first-time homebuyer assistance programs, as well as loan programs offered by lenders designed to help young buyers reach homeownership sooner. That said, given many Baby Boomers’ growing housing wealth, the best help first-time homebuyers can find may be closer to home.