There’s this consensus that people who come from money are at an advantage, Redfin’s chief economist, Daryl Fairweather, explained—but it made her think: how does family money play out in the housing market, she told Fortune.
Redfin conducted a survey of recent movers earlier this year, and 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 to afford their down payment, making them what Fairweather calls, “nepo-homebuyers” (clearly a play on nepotism—giving power/favors to relatives), which she’d recently written about as a Forbes contributor.
“I think the reason that matters so much in this housing market is because of how expensive housing has become,” Fairweather told Fortune. “It seems like the only way to kind of get your foot in the door to the housing market is to have some help,” or have an exceptionally high-income, particularly at a younger age, she added.
Housing affordability is deteriorating, and it’s worse now than at the height of the housing bubble, following an over 40% increase in home prices coupled with mortgage rates that have more than doubled. For many, homeownership is becoming out of reach. If you were looking to buy in California, where the average home value is $741,789, to put 20% down you’d need $148,358. Let’s say you were looking to buy in Texas, which is much more affordable than California, with an average home value of $301,763, you’d still need $60,353 for a 20% down payment. For some, that’s not feasible, and it doesn’t take into account what would be a substantially larger monthly mortgage payment now that mortgage rates are back up.
“If you’re trying to get into the housing market, and because of how high interest rates are, because of how high home prices are, you have to be like the exception to the rule in terms of your earnings to get into the housing market if you don’t come with cash,” Fairweather said, and that cash typically comes from parents or other family members.
At the same time, the income needed to buy a starter home as a first-time homebuyer is higher than it used to be, given that it jumped 13% in the last year alone, Fairweather explained, citing a recent Redfin analysis. So it’s clear, family money can make the difference. And, the earlier you can buy a home, the more equity you can build—which let’s say in the case of a starter home, can help you buy your next, maybe forever home.
“It really kind of turns into a snowball effect, where the people who are getting help, the earliest, end up accumulating even more wealth, and it further solidifies that divide between the haves and the have-nots and perpetuates intergenerational wealth inequality,” Fairweather said.
Fairweather was a nepo-homebuyer herself. Back in 2015, when she was 27-years-old, her mom sold her condo and gave Fairweather the money to put toward a downpayment, so that she could own a home. Fairweather’s mom lived with her until she’d built up enough equity to then buy her a home.
“Had it not been for her doing that, it would have taken me years to be able to afford a home of my own,” Fairweather said, later adding that “year after year, prices kept going up.”
Her mother was a real estate agent for some time and had always been a proponent of homeownership, Fairweather said. Her mother and her father bought their home in the 1980s, and struggled to do so because their offers were constantly turned down. Her father is Black, and it wasn’t until her mother, who is white, went to listings alone, that their offer was accepted, she said.
Children with parents that are homeowners are more likely to become homeowners themselves, Fairweather explained in her Forbes story, citing academic research and a Redfin survey from 2021 that found 79% of current homeowners had a parent who owned their home. “Whether or not your parents were able to buy a home is tied up in the inequities of the past, and those inequities persist because having homeowner parents is so important,” Fairweather said.
Parents that are homeowners can tap into the equity they’ve built, as a source of wealth, at any time to send their kids to college or give them the cash they need to buy a home, Fairweather said. With the cost of homeownership consistently going up, and with interest rates being as high as they are, a lot of people can’t afford that monthly mortgage payment. That is, unless they put a lot of money down, which in some cases, they get from their parents. Although, high-earners and all-cash buyers are the exception.
“Everybody else, which is probably most people, are having to turn to family for help in order to get into the housing market,” Fairweather said.
We’re at a point, when you pretty much need family money to buy a home, which itself is a testament to how unaffordable our housing market has become. But on the other hand, it’s clear that those without family money to fall back on are effectively being locked out of the market.
“In the United States, we’d like to think of ourselves as a place where anybody can make it, like where you’re born or the family you’re born into doesn’t matter, but that’s increasingly not becoming the case,” Fairweather said, “because of how expensive homeownership is and the role that homeownership plays in terms of wealth accumulation.”