Financial gifts from parents decline to near pre-crash levels
As first-time homebuyers finally begin returning to the housing market, there may be one “bank” in the country that is actually happy to be lending less, namely the Bank of Mom & Dad.
Last year, the percentage of family and friends supplying financial help had fallen to 12%, the lowest since mid-2007 when 8% of parents helped their children buy a home, according to Zillow.com, using an analysis of the Federal Reserve Board’s 2014 Survey of Household Economics and Decision-making (SHED).
Compare that to the height of the Great Recession in 2009 when family and friends helped contribute gifts and loans to nearly 21% of all homes (first time buyers and all other buyers), the report found.
Things may be looking up for young homebuyers. U.S. Census Bureau data released Tuesday also showed a rise in homeownership among those under 35 years old.
At the worst point of the housing crash between 2012 and 2014, nearly a quarter of buyers who had incomes between $32,250 and $54,500 had some form of assistance from family members. Not surprisingly, the lower the income, the less likely a potential homebuyer would have access to family help, and yet, 15% of those homeowners with incomes of $17,500 or less were able to get some form of family financial help.
“Middle-income home buyers are the households most likely to both need help in funding a down payment [and] have social networks in place capable of providing assistance,” Zillow noted. The Great Recession hit the millennial generation particularly hard because this group was burdened by large amounts of student loan debt, poor job prospects that hurt saving and other wealth-building tools like company 401(k)-matching. The baby boomers were able to weather the Great Recession better, thanks to a steady recovery of stock portfolios and a rebound in the price of homes they already owned, Zillow noted.
The racial breakdown of home buying help shows that 15% of white homeowners took some form of familial assistance, while 7% of blacks did, and 23% of Hispanic homeowners in 2014, Zillow’s analysis of the Federal Reserve survey also showed.
That said, the primary source for down payments and closing costs continue to be savings, with 65% of homes purchased from 2012 to 2014 using some form of savings account, the Federal Reserve noted, up from 51% in the pre-recession level of 2005 to 2007. A second mortgage is the third-biggest form of assistance, followed by one of nearly 2,000 government down payment programs that often aren’t accessed.
Still, 22% of first-time homebuyers (which made up about 37% of the market in 2014) surveyed in in the post-recession era of 2012 to 2014 relied on financial gifts or loans from family and friends, compared to just 11% in the pre-Great Recession level during 2005 to 2007, Zillow said, citing its analysis of the Federal Reserve SHED data.
“(G)ifts from family and friends have likely increased in importance among first-time homebuyers in more recent years, perhaps driven by high rents, still-tight credit availability, student loan debt and/or higher down payments as home values have increased,” Zillow noted on its blog.