To Afford a Down Payment, Young Homebuyers Often Need 'a Pot of Family Money'

With current mortgage rates flirting with 7% and typical home prices stuck well above $400,000, how are young adults able to buy a home?

A report released Wednesday by the real estate brokerage Redfin sheds some light. To afford down payments, Gen Z and millennial homebuyers are taking on second jobs, emptying their savings accounts and, notably, relying on the bank of Mom and Dad.

“Young Americans are increasingly turning to family to help fund down payments largely because it’s so expensive to purchase a home,” wrote Redfin’s Dana Anderson in the report.

According to the firm’s survey, 36% of young homebuyers — a group that includes adults under age 43 — are counting on cash gifts from family to help them afford home down payments. This number has doubled since before the pandemic, when Redfin asked the same question to millennials in 2019. At that point, only 18% said they were going to use cash from family.

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Why it’s getting harder for young Americans to afford down payments

Part of what’s fueling the trend of tapping one's parents for down payment assistance is rapid home price growth. Home prices have skyrocketed nearly 40% from pre-pandemic levels, Anderson noted.

Besides getting help from Mom and Dad to fund a down payment, 60% of young adults are saving up their own money, 39% are working second jobs and 22% are raiding their retirement accounts.

In addition to requiring multiple sources of funding, young homebuyers are making much smaller down payments than older generations.

According to separate research from the National Association of Realtors (NAR), the median down payment for 24- to 32-year-olds was 8% in 2023 — far from the golden rule of 20%, which is typically the threshold needed to avoid having to pay for private mortgage insurance.

Meanwhile, the report said, those aged 58 and older put down at least 20% — and the oldest homebuyers, up to 27%. NAR's report also found that homebuyers age 58 and up were far more likely to say they "did not need to make any sacrifices" to purchase a home. The discrepancy is largely because these older homebuyers were able to at least partially fund their purchase by selling their existing home.

(Among homebuyers of all ages, the typical down payment in 2023 was 14%, NAR found. Assuming the median home price of $417,700, that down payment translates to nearly $60,000.)

According to Redfin, all of this points to one crucial fact: “Housing is simply too expensive.”

As Redfin Chief Economist Daryl Fairweather underscored in the report, this ends up creating a dichotomy between young adults who have “a pot of family money to dip into” and those who don’t. As a result, many young Americans without family money are essentially shut out of homeownership, ultimately contributing to wealth inequality.

“The American dream is just as much about class mobility as it is the home with a white-picket fence,” Fairweather said. “The housing affordability crisis has made both elements of the dream harder to attain.”

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