Bank of Mom & Dad Bail Out the Housing Market

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Although the housing market is stabilizing, young first-time homebuyers’ lack of participation is getting in the way of the recovery process. According to the latest data from the Census Bureau, the share of homeowners age 25 to 29 fell from 40.6% in 2007 to 34.1% in 2013.

“The millennials will have a huge impact on the housing market,” said Jed Kolko, real estate website Trulia’s chief economist. “Whatever this age group does, whether it’s housing or jobs or consumer spending, will have a big effect on the economy.”

Luckily, one economic powerhouse is stepping in: The Bank of Mom and Dad.

“We’re finding more and more parents are gifting money,” said Deborah Baisden, a Realtor with Prudential Towne Realty in Virginia Beach, Virginia,. “Because of student debt and because of kids having a tough time finding jobs, it’s becoming increasingly difficult for them to be able to buy homes — we’re turning into a country of renters.”

According to data from the National Association of Realtors, 27% of first time home buyers received a cash gift from relatives or friends to help pay for a down payment last year — a three percentage-point increase from 2012.

“Interest rates are the lowest they’ve ever been, and home values are still reflective of a buyers market. I’ve seen a lot of young home buyers ask for help with closing costs from the seller, who have been very cooperate,” says Priscilla Allen, Realtor, Allen Realty Group.

This trend will continue as the economic dichotomy between millennial children and baby boomer parents continues to grow.

Younger Americans are held back from the housing market because of student debt, the unavailability of good jobs, and stricter mortgage lending rules that require higher amounts of cash up front. To make matters even worse for millennials, their paychecks are shrinking. According to a Progressive Policy Institute analysis of Census Bureau data, college grads ages 18 to 34 years old working full time experienced a $3,300 drop in average annual earnings from 2007 to 2012.

Simultaneously, baby boomer parents are in a better position to lend or give money, thanks to rising stock and property values.

“Without [parents’ financial help], the recovery’s not sustainable,” said Wells Fargo Securities senior economist Anika Khan. Anything that puts more money into the hands of first time home buyers “just moves the housing recovery along.”

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