Bank of M & D

According to the National Association of Realtors, millennials have been leading all other in home purchases for five years. But, if you mention this to an assortment of millennials, you might get a surprised look, given how many are busy trying to pay off college loans, keep up with stiff rents, and figure out how to get ahead when wages have grown so slowly compared to the cost of living.

 

A recent study from Legal & General, a multinational financial services company based in London, helps crystallize how a big block of millennials and those of other generations have managed to purchase a house when the median sales price as of the third quarter of 2018 was $315,600.  Turns out Buyers get extra help from the Bank of Mom & Dad.

 

According to the study, 1.2 million homes sold in the U.S. in 2018 at a combined value of $317 billion. And one in five of the buyers received gifts or interest-free loans—or, let’s be frank, loans that turn into gifts—from parents.  In fact, the study estimates that if the Bank of Mom and Dad were really a business, it would be the seventh largest mortgage lender. And all without points.

 

The average amount that these of buyers received from the B of M&D (and probably grandparents) was $39,000. The top end is quite a bit higher.

 

Clearly most of the customers at B of M&D aren’t getting million-dollar handouts. But especially for younger buyers, it’s an important channel of capital to secure a home.  

B of M&D is also big in the business of helping their offspring to pay down college loans, which also has an impact on home ownership, as 51% of those who graduate without student debt own a home, compared to 39% of those who do have student loans to pay off.  

 

It’s great if the buyers or students do have family that will help. But the catch is it can leave the parents in a strained financial circumstance, with 54% dipping into their cash savings and others doing such things as taking money out of an IRA or 401(k), downsizing their own homes to free capital, or taking out a loan themselves to cover the costs. 

 

The choice of either protecting your own financial well being or helping the newer generation jump start their financial future is another example of the strain the current economy is putting on America’s middle class.

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