The skyrocketing prices of houses across the country are making it difficult for millennial first-time home buyers. Saving up enough money for home buying isn’t easy for most millennials, as many need financial assistance from their baby boomer parents. The high demand for new homes and the limited supply force many kids of the baby boomer generation to purchase homes much later in life.
The millennial generation isn’t only becoming homeowners much later, but they often turn to others more often for financial help than past generations. A study from Legal & General in 2018 showed that 43% of people under the age of 35 received support from parents or other family members while buying a home.
These trends only further highlight the relationship between parents and children working together in making a home purchase. These baby boomer parents feel that helping out their child in buying a home is a secure investment.
According to the S&P CoreLogic Case-Shiller Index, the prices of homes were 16.6% higher in May than the previous year, which is the most significant gain in over 30 years. These increases in home costs are especially prevalent in smaller cities. More people are moving from the coast and into smaller metro areas, significantly increasing home prices.
Challenges for Millennial First Time Home Buyers
A report from the Urban Institute in July 2018 showed that the average rate of homeowners in the millennial generation was 8% lower compared to the baby boomer generation at the same age. This homeownership gap is even greater for minority households, as the rate of homeownership was 15% less compared to white millennials.
Many in the millennial generation are saddled with high rates of student loan debt and are also getting married later in life, which often further delays homeownership. The high cost of rent is also making it even more challenging to save money.
The rising cost of lumber isn’t the only challenge for the decline in millennial home buying, as exclusionary zoning laws prioritize the construction of large homes compared to small starter homes. These laws usually require minimum lot sizes, which makes it difficult for millennial first-time home buyers. The impact of these zoning policies makes it difficult to find entry-level housing in many areas of the country.
Accumulation of Wealth
The baby boomer generation has been accumulating wealth for many years, while those in the millennial generation often struggle to pay off high student loan debt and other expenses. One way that those born in the baby boomer years ensure the longevity of their wealth is by giving it to their millennial kids.
More baby boomer parents are wanting to help their kids out by providing financial assistance. Those born during the baby boomer years control much of the wealth in the country due to retirement plans invested primarily in the stock market, and they also purchased larger homes with more value. These factors have put many boomer parents in a good financial position to provide financial help to the millennial generation.
Cash Surrender Value of Boomer Life Insurance Policies
Another way for the baby boomer generation to secure money for their millennial kids and grandchildren is to consider having their life insurance policies appraised. The cash surrender value of life insurance is the amount of money leftover after canceling a life insurance policy. This additional money is beneficial in providing financial assistance for millennial first-time home buyers.
Learning more information about the life insurance policy appraisal process is essential for boomer parents. A life settlement can play a crucial role in allowing baby boomer parents to gain additional money to help millennial home buying. Reaching out to your insurance provider is a good idea to learn more about the cash surrender value of life insurance.
National Trends
The impact of the pandemic has resulted in home prices at historic high levels, and many in the real estate industry expect this trend to continue. Boomer parents are often giving their children financial assistance for making a down payment on a new home. The number of baby boomer parents offering help to their kids has significantly risen in the last few years, as the amount of money gifted varies with each family.
These financial gifts will most likely continue while the price for housing remains at an all-time high. The only factor limiting parents from giving their children money is if the gift tax laws change. Currently, the annual exclusion amount is $15,000, as any amount over this figure requires a gift tax return filed with the IRS.
Ultimately, these trends in the housing market will continue for the foreseeable future, as more millennials rely on their baby boomer parents for purchasing first-time homes.
