Daryl Fairweather, Redfin’s chief economist, explained that the common belief is that rich people have an advantage, but it got her thinking: How does household money play out in the real estate market, she told us wealth.
A Redfin survey of recent movers earlier this year found that 38% of more than 500 buyers under the age of 30 either used a cash gift from a family member or an inheritance for the down payment, which is Fairweather Called, “nepo-homebuyers” (apparently a game of nepotism – giving relatives power/benefits), she recently wrote Forbes contributor.
“I think the reason this housing market is so important is because it’s become very expensive,” Fairweather told reporters. wealth. “It seems like the only way to get your foot in the housing market is to get some help,” or have an extremely high income, especially at a young age, she added.
Housing affordability is deteriorating and is worse now than at the height of the housing bubble, as home prices have risen by more than 40% and mortgage rates have more than doubled. For many, homeownership is becoming out of reach. If you’re looking to buy a home in California, where the average home price is $741,789, you’d need $148,358 with a 20 percent down payment. Let’s say you want to buy a home in Texas, where home prices are much cheaper than in California, with an average home price of $301,763, but you still need $60,353 for a 20% down payment. For some, that’s not feasible, and it doesn’t take into account the huge increase in monthly mortgage payments when mortgage rates pick up.
“If you want to get in the real estate market, because of how high interest rates are, how high house prices are, you have to be an exception in terms of income to get in the real estate market. If you don’t have cash, get in the market,” Fairweather said, while cash Usually from a parent or other family member.
Meanwhile, Fairweather cites a recent analysis from Redfin explaining that first-time home buyers need more income than before to buy a starter home, up 13% in the last year alone. Clearly, family money can play a role. And, the sooner you buy a home, the more equity you can build — say, in terms of a starter home, to help you buy your next, maybe forever home.
“It really becomes a snowball effect where those who get help first end up accumulating more wealth, which further cements the divide between haves and have-nots and perpetuates intergenerational wealth inequality.” Fairweather Said.
Fairweather is a new home buyer herself. Back in 2015, when she was 27, her mom sold her condo and gave Fairweather a down payment so she could own a home. Fairweather’s mom lived with her until she accumulated enough assets to buy her a house.
“If she hadn’t done it, it would have taken me years to afford my own home,” Fairweather said, later adding, “Year after year, house prices kept going up.”
Fairweather said her mother worked as a real estate agent for a while and has been a supporter of homeownership. Her parents bought their home in the 1980s, but they’ve struggled as bids keep getting rejected. Her father, who is black, didn’t accept their offer until her white mother went to the listing alone, she said.
In her book, Fairweather explains that children whose parents are homeowners are more likely to become homeowners themselves. Forbes The story cites academic research and a 2021 Redfin survey that found that 79 percent of current homeowners have parents who own their own home. “Whether your parents were able to buy a home is related to past inequalities that persist because having homeowner parents is so important,” Fairweather said.
Homeowner parents can always use the assets they’ve built as a source of wealth to send their kids to college or give them the cash they need to buy a home, Fairweather said. As the cost of homeownership continues to rise and interest rates remain high, many people cannot afford their monthly mortgage payments. That is, unless they save a lot of money, which in some cases they get from their parents. High earners and all-cash buyers are exceptions, though.
“Others, probably most, have to turn to family members for help to get into the real estate market,” Fairweather said.
We are at a point where families are desperately needing money to buy a home, which is a testament to just how unaffordable our housing market has become. But on the other hand, it’s clear that those who don’t have family money to fall back on are effectively excluded from the market.
“In America, we want to think of ourselves as a place where anyone can succeed, like it doesn’t matter where you were born or what family you were born into, and that’s increasingly not the case, Fairweather said,” because The cost of owning a home is very high, and homeownership plays an important role in wealth accumulation. ”