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An American housing market “crisis” has some first-time homebuyers turning to the bank of mom and dad to help them achieve the rite of passage.
Enter “nepo-buyers,” who can be described as adult children utilizing either gifted down payments, mortgage co-signs or entire homes and condos from their families.
“Rising home prices, higher interest rates, higher cost of insurance, higher maintenance, just everything being astronomically higher, it’s definitely becoming a lot more challenging to become a first-time homebuyer if we don’t have some extra help,” Douglas Elliman’s Ruthie Assouline told Fox News Digital.
“But almost every buyer that we’ve worked with that was in that first-[time] homebuyer type of position had some form of parental involvement.”
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Assouline and her real estate team have started noticing a wave of parents or family stepping in to help their children buy properties and have some kind of fighting chance to enter a competitive market.
Typically, homebuyers use the 30% rule – or limiting mortgage expenses to no more than 30% of monthly income – to guide their property purchasing decisions. However, a new report from Realtor.com found that affordability in just three of America’s 50 top metro areas is such that households that make the median income can scoop up a home that won’t go above 30% of their yearly earnings.
Additionally, the National Association of Realtors reported that the median age of a first-time homebuyer has now reached 38; and a 2023 Redfin report indicated that 38% of homebuyers under age 30 used either cash gifts or an inheritance for their down payment.
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Parent-driven purchases now play a notable role in keeping America’s housing market active, especially at entry-level price points that have seen major slowdowns.
“We do work with a lot of empty nesters who have already been well-established in their career and their financial status,” Assouline noted. “And more often than not, part of the conversation becomes helping their adult children be able to attain their first-time home and talking about realistic expectations of what they can expect in the home that they can not only acquire, but also be able to financially maintain.”
“It could range… from like a down payment to the entire home to maintenance [fees],” she explained. “It all really varies and there’s not a ‘one case scenario’… you see that those that do have parental health naturally would have the added advantage, because in the event you were, let’s say, in a bidding war, the stronger you can make your terms, the more likely you are to get that property.”
Focusing primarily on the New York City and Miami real estate markets, Assouline argued she’s seen more pros than cons of having the help of mom and dad’s money muscles.
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“People in general have all become a lot more savvy and a lot more careful with how they spend their money and how they’re approaching these acquisitions and these purchases,” she said, “which, for the majority of people, this is the largest purchase and asset that you have.”
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“With parental involvement… they’ve really been empowering their children to make the right decisions, make sure that they’re really doing their due diligence, that they are working with a broker that can help them understand what the market is, what are the comps, what are values, what is it going to be to acquire it, what is going to be maintain it,” Assouline listed.
“It really helps give you a boost in building your own personal equity, securing your own home. Right now in this crazy world, your home is your safe space and is your protective space. So being able to actually acquire and also maintain that home, that’s a huge pro.”
“This is your chance to build your future so that in 20 years from now, when we’re in a housing crisis like this again, you’ll be able to be that parent to your nepo-[buyer] in the future.”
Some of the nepo-buyer cons include co-ops potentially banning parental support, and being at risk of familial conflict.
“In these co-ops, it varies building by building if you are allowed to accept a parent gift towards the purchase. Some of the buildings do not allow any parental support or help in being able to buy, and some do allow parental support,” the real estate expert said.
“And naturally, if you’re buying something with the help of somebody else, that may or may not, and most likely may, include a string that’s attached,” Assouline cautioned. “Whatever that may be, that’s all very personal and circumstantial.”
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Whether you classify yourself as a “nepo-buyer” or not, Assouline remains bullish about increasing housing inventory nationwide, creating opportunities for first-time buyers not seen in five years.
“Buyers are having more buyer flexibility,” she said. “Sellers are a lot more amenable to entering into an earnest negotiation… for those that don’t have parental involvement, because many, many do not, this is your time and opportunity to enter the housing market… this is your chance to build your future so that in 20 years from now, when we’re in a housing crisis like this again, you’ll be able to be that parent to your nepo-[buyer] in the future.”
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