There’s a consensus that people who come from money have an advantage, Redfin’s chief economist Daryl Fairweather explained — but it got her thinking: How does family money play out in the housing market, she said. Fortune.
Redfin conducted a survey of recent movers earlier this year and found that 38% of over 500 buyers under the age of 30 used a cash gift from a relative or an inheritance to pay their down payment, leading them to what Fairweather calls,’ nepo home buyers’ (obviously a game about nepotism – giving power/favors to relatives), which she had recently written about as a Forbes contributor.
“I think the reason it matters so much in this housing market is that housing has gotten so expensive,” Fairweather told me. Fortune. “It seems like the only way to get a foot in the door in the housing market is to get some help,” or to have an exceptionally high income, especially at a younger age, she added.
Housing affordability is deteriorating, and is now even worse than at the peak of the housing bubble, after house prices rose by more than 40% coupled with mortgage rates that more than doubled. For many, homeownership has become out of reach. If you wanted to buy in California, where the median home value is $741,789, you would need $148,358 to reduce 20%. Say you want to buy something in Texas, which is much more affordable than California, with a median home value of $301,763, you still need $60,353 for a 20% down payment. For some, that’s not feasible, and it doesn’t take into account what would be a substantially higher monthly mortgage payment now that mortgage rates are back up.
“If you’re trying to access the housing market, and because of the high interest rates and because of the high house prices, you have to be the exception to the rule in terms of your income to access the housing market. market if you don’t bring cash,” Fairweather said, and that cash usually comes from parents or other family members.
At the same time, the income needed to be the first home buyer to buy a starter home is higher than it used to be, as it’s up 13% in the past year alone, Fairweather explains, citing a recent Redfin analysis. So it is clear that family money can make all the difference. And the sooner you can buy a home, the more equity you can build up, which, let’s say in the case of a starter home, can help you buy your next, perhaps forever home.
“It basically turns into a snowball effect where the people who get help first end up accumulating even more wealth, and it further deepens the gap between the haves and the have-nots and perpetuates intergenerational wealth inequality.” said Fairweather.
Fairweather himself was a bogus homebuyer. In 2015, when she was 27 years old, her mother sold her apartment and gave Fairweather the money to put down a down payment so she could own a house. Fairweather’s mother lived with her until she built up enough equity to buy her a house.
“If she hadn’t, it would have taken me years to afford my own house,” Fairweather said, later adding that “year after year, prices kept going up.”
Her mother was a real estate agent for a while and had always been an advocate for homeownership, Fairweather said. Her mother and father bought their house in the 1980s, and struggled because their offers were constantly rejected. Her father is black, and it wasn’t until her mother, who is white, went to the ads alone that their offer was accepted, she said.
Children with parents who are homeowners are more likely to become homeowners themselves, Fairweather explained in her Forbes story, citing academic research and a 2021 Redfin survey that found that 79% of current homeowners had a parent who owned their home. “Whether or not your parents were able to buy a house is tied to the inequalities of the past, and those inequalities persist because having homeowner parents is so important,” Fairweather said.
Parents who are homeowners can at any time use the equity they’ve built up as a source of wealth to send their children to college or give them the money they need to buy a house, said fairweather. With the cost of homeownership constantly rising and interest rates so high, many people are unable to afford the monthly mortgage payment. Unless they put aside a lot of money, which in some cases they get from their parents. However, high earners and all-cash buyers are an exception.
“Everyone else, probably most people, have to turn to family for help accessing the housing market,” said Fairweather.
We’re at a point where you pretty much need family money to buy a house, which in itself is a testament to how unaffordable our housing market has become. But on the other hand, it is clear that people without family money to fall back on are effectively excluded from the market.
“In the United States we want to see ourselves as a place where everyone can make it, where you are born or what family you are born into does not matter, but that is less and less the case. Fairweather said, “because of how expensive homeownership is and the role homeownership plays in terms of wealth accumulation.”
