With starter homes becoming increasingly unaffordable, some first-time buyers are relying on family so they can join the ranks of homeowners. Would-be buyers who are born to homeowner parents also have an edge in getting on the first rung of the housing ladder.
Research by Redfin and others underscores the challenges young buyers face, but also reveals a “secret weapon” some of them have – nepotism — giving rise to the term “nepo-homebuyer.”
A Redfin-commissioned survey conducted earlier this year by Qualtrics asked participants who either moved in the last year, plan to move in the next year, or rent their homes to answer yes or no to the question: “Do you believe that you will ever own your own home in the future?”
Nearly one of every five (18%) millennials (aged 27 to 42) and 12% of Gen Zers (aged 18 to 26) who replied believe they will never own a home. About half of them said it’s because homes are too expensive.
Other affordability-related reasons were also cited, including inability to save for a down payment, high mortgage rates and out-of-reach mortgage payments, and student loan debts.
The double whammy of escalating prices and mortgage interest rates that have doubled in recent years means homes in the U.S. were less affordable across 99% of counties in the third quarter of this year than the historical average, according to findings by data provider Attom.
In other research, a report published 20 years ago in the Journal of Political Economy examined the correlation of wealth across generations. The authors found that children of homeowner parents are significantly more likely to be homeowners in adulthood.
Fast forward to 2021 when Redfin surveyed 1,500 homeowners and found 79% of current owners had a parent who owned their home, and 67% had a grandparent who owned a home. In another survey conducted this year, recent homebuyers were asked how they accumulated money for their down payment. Of those under age 30, some 23% used a cash gift from family members, while 21% used inheritance money.
Compared to these nepo-purchasers, those without intergenerational wealth “face a difficult road” in their quest for homeownership, acknowledged Redfin Economist Daryl Fairweather.
In discussing the findings, Fairweather commented on the inequities of the past (before enactment of the Fair Housing Act) and ways to level the playing field for first-generation homebuyers. Among actions she identified were:
- Down payment assistance to help first-time homebuyers who don’t have help from family to afford a home.
- Rental assistance to help families reduce their costs and enable them to save up for a down payment.
- Reforming zoning laws to increase the supply of affordable homes by allowing construction of more starter homes.
“To undo the inequities of the past, we must prioritize these policies,” she wrote adding, “Or else, homeownership may become a birthright instead of an attainable economic aspiration.”