Improved Economy Means Parents More Willing to Give Financial Support
Mom and dad are stepping in to help many first-time home buyers with their down payment.
Last year, 27% of first-time home buyers received a cash gift from relatives or friends to come up with the money for the down payment, according to data from the National Association of Realtors. That marks an increase from 24% in 2012 and matches the highest share since the group began keeping records in 2009.
With younger Americans dealing with student debt, tough entry into the job market, and stricter mortgage-lending rules that require more cash upfront, these numbers will likely continue to grow.
On the other hand, rising stock and property values are allowing Baby Boomer parents to assist those wanting to lock in near record-low borrowing costs.
“Without them, the recovery’s not sustainable,” said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. Anything that gets more money into first-time buyers’ hands “just moves the housing recovery along,” she said.
Millenials Face Financial Struggle
Over half, 54%, of first-time home buyers in 2013 blamed the burden of student loans for delaying their purchases, because they were unable to save enough for a down payment.
It doesn’t help that their income is down as well. College graduates age 18 – 34 working full-time experienced a $3,300 drop in average annual earnings adjusted for inflation from 2007 to 2012, according to a Progressive Policy Institute analysis of Census Bureau data.
Mom and Dad to the Rescue
While their kids are struggling to balance out low-wage jobs and student loan debt, the Baby Boomer generation has seen their retirement savings almost double since the end of the recession. They had an average $147,700 in their 401(k) accounts in June, up from $76,500 five years earlier when the economic slump ended, according to data compiled by Fidelity Investments.
With their wealth rebuilding, some older Americans are deciding that they’d rather see their offspring enjoy the benefits now, while they’re still around, rather than waiting and relying on the probate process.
“You have greater control over how that money’s disbursed, who it goes to for what purpose,” said Greg McBride, senior financial analyst for Bankrate Inc. in North Palm Beach, Florida. “After you’re gone, you don’t,” he said. “The other uncertainty is, you don’t know what the estate laws are going to be like when your time is up.”
According to the IRS, each spouse can make a gift of $14,000 to a child or other individual and be excluded from paying taxes.
More Bang for Their Buck
Nowadays, home buyers are looking for more than just the right-sized home in the right neighborhood. 24/7 Wall St. reviewed data from the National Association of Realtors, and found that home buyers are willing to pay more for a house if it has certain features.
For example, one feature home buyers are willing to shell out extra money for is hardwood floors. In fact, 54% of home buyers said they would be willing to pay more for a home with hardwood floors, and would be willing to pay over $2,000 more.
At least 25% of buyers under the age of 35 in particular considered hardwood floors to be “very important” when looking for a home. While older generations tend to feel more comfortable with carpeting, younger people prefer hardwoods.
The Time is Right
It looks like now is the time for first-time buyers to enter the market. With the influx of investors pulling out of the market and no longer scooping up properties, the field is open for first-time buyers as sellers look to expand the market.
“With the investors stepping away, for some first-time buyers and millennial buyers, they have less competition,” said Lawrence Yun, NAR’s chief economist. “So it would be an opportune time to enter the market.”