A view of the San Francisco skyline from Alamo Square Park. Rich Fury/Getty Images

Can millennials afford a house without family help?

Janet Nguyen Jan 6, 2023
A view of the San Francisco skyline from Alamo Square Park. Rich Fury/Getty Images

The American dream has become too expensive: Most millennials want to own a home one day, but they sure can’t afford one now.

During the pandemic, housing prices have climbed, with the nationwide increase moderating to 2.6% year over year in November. The frenzy became so intense last year that some houses sold for more than double their listing price. 

On top of high prices, many millennials also have to contend with high student debt and stagnating wages.

Some of the lucky first-time homebuyers who are able to enter the housing market have family support. From mid-2021 to mid-2022, 22% of first-time homebuyers received help for their down payment through a gift or loan from a friend or family member, according to data from the National Association of Realtors. 

“That allows them to overcome other hurdles that homebuyers may have, such as paying for student loan debt or a car payment,” said Jessica Lautz, deputy chief economist and vice president of research at NAR. 

Lautz explained that it can be “very difficult” for people to afford a home without that family assistance, especially with prices rising far faster than incomes. 

“The competition last year was fierce among all-cash buyers and those who are able to play in the housing market who had quite a bit of money versus first-time homebuyers who don’t have that equity they can rely on,” Lautz said. 

Lautz also noted that 27% of first-time homebuyers previously lived with parents, relatives or friends — an all-time high. She said this points to a large increase in people who worked remotely, maybe living with Mom and Dad, allowing them to save up for a down payment since they didn’t have to rent an apartment. 

“I think it just becomes an environment of haves and have-nots in the housing market: those who are able to rely on an intergenerational transfer of wealth versus those who are essentially being left behind and out of homeownership,” Lautz said. 

It’s very possible that those “left behind” have parents who aren’t homeowners either, she said. 

Some are in housing markets that are so pricey, they’ve moved to more affordable areas in hopes of being able to buy a home. 

Danielle Zelinski — who was born in San Jose, California — moved last year from the Bay Area to Tacoma, Washington. Zelinski and her husband purchased a home in the city with a little bit of help from their parents, amounting to about 10% of the down payment. 

Zelinski called living in Tacoma “fantastic,” with free outdoor activities and much cheaper child care than the going rates in the Bay Area. 

While she and her husband had good salaries, the cost of living, including housing, in the Bay Area meant saving up for a down payment “seemed impossible.” Back in late 2021, with a baby on the way, she decided to stop working because of the high cost of child care. Although she’s currently not paying for child care, she said that if she returned to work they would be able to afford it. 

“The Bay Area is beautiful. It’s a great place,” she said. “You can go running, you can go hiking, you can go to great theater, you can go to great restaurants. So I really do like the Bay Area.” That’s why, Zelinski said, it’s unfortunate the area is so expensive. It prevents people who grew up there from continuing to live in the region. 

She said her peers who were able to afford a home were “fortunate to have very, very good jobs very early on in their careers,” while others received a lot of family support. 

In the Bay Area in late 2022, the median sales price of a house stood at more than $1.2 million. The cost of Zelinski’s home in Washington? $350,000. 

Being able to own their own home was a priority for the family. 

“It’s ours. It’s something that we have worked for. It feels more comfortable. We’re pretty much paying ourselves, and we can have more agency changing our living situation. If we want to redo the kitchen, we can eventually, once we have enough money,” she said. “It feels safer and more secure because we’ve worked for it.” 

Suzanne Rocha, a Bay Area real estate broker and owner of Cal Home Real Estate Services, said that based on her own experience and observation, almost half of millennials need some degree of help from family support, 401(k) withdrawals or down payment assistance programs to afford a home. 

Rocha said it’s rough right now for millennials because they don’t have a lot of cash at their fingertips, unless they have a job in high-tech or a desirable, high-end career. 

“There are closing costs with purchasing a home. There are fees, there are a lot of unknown factors. It’s not just a down payment,” she said. She added that many people have moved to more affordable areas in Northern California or left the state entirely. 

Jermaine Toney, an assistant professor of economics at Rutgers University, said that “wealth begets wealth.”

“There’s a very strong connection between intergenerational networks and asset-building wealth — including homeownership. Generational wealth matters,” Toney said. “A substantial portion of grandparents with the lowest proportions of wealth are likely to have grandchildren who possess low levels of wealth.” 

Yuval Elmelech, an associate professor of sociology at Bard College and author of the book “Wealth,” said that in parts of the country — such as San Francisco and New York — it’s become virtually impossible to buy a house or even rent, forcing many people to relocate. For many who live there, parental wealth has made a big difference. 

“If parents can help their children buy a home, this means that these children will need to rely less on loans and mortgages,” he said. “Whereas other young couples, individuals who cannot rely on parental resources — and this is the majority of the population — will have to take out higher loans.”

In some cases, repaying them may be impossible, leaving some homeowners to foreclose on their house, he added.

With home equity often the largest component of a household’s net worth, inequality will likely persist from one generation to the next because of this type of gap, he said.

Elmelech thinks millennials’ ability to build wealth will be delayed because homeownership “is a key driver of wealth accumulation.” 

In November, pending home sales dipped to their second-lowest level in two decades, according to NAR. Looking ahead, Lautz expects a “continued retraction” in home sales activity in 2023 amid rising interest rates (which have led to higher mortgage rates) and rising home prices. Although mortgage rates declined in late 2022, the 30-year fixed is averaging 6.48% — double the level of a year ago. 

Lautz observed that housing inventory is still limited, and we especially need more homes built for first-time buyers at affordable price points. 

“That’s the inventory that we really are missing in this environment,” she said. 

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