The American dream of home ownership is increasingly tied to inheritances, as a record-breaking number of first time buyers rely on inheritances in order to navigate an historically challenging housing market.
Prices that are skyrocketing, down payments that are substantial, and an older buyer pool paint the picture of a market that is primarily accessible to the wealthy, leaving many aspiring homebuyers struggling to get a foothold.
The rise of inheritance-funded homes
The National Association of Realtors’ (NAR) most recent report reveals an alarming reality: 7% of homebuyers who were first-time buyers used inherited funds to pay for their down payment last year. This is more than twice the rate of repeat buyers.
This trend highlights the growing wealth gap in the housing market. Access to family wealth is increasingly determining who can afford to purchase a home.
The affordability gap: Wealthier, older buyers dominate the market
The typical homebuyer profile is changing, with older and more wealthy individuals dominating the market.
First-time buyers are now a smaller share of the market. They have been at their lowest level since 1981.
The median age of first-time home buyers and their income have also reached new records, highlighting the affordability issues faced by younger generations.
Down payments are on the rise: competing in an industry that is heavily cash-based
First-time buyers now make the largest down payment in nearly thirty years, a testament of the competitive pressures on a market where cash-only offers are becoming more common.
Many people find that an inheritance can provide the financial boost they need to compete in today’s challenging environment and bridge the affordability gap.
The great wealth transfer
The reliance on inheritance to purchase a home coincides with an estimated $84 trillion in intergenerational wealth transfers over the next 20 years.
This massive transfer of assets is expected to exacerbate existing inequality, as only a small segment of the population benefits from them.
Fortune reported that “these inheritances have become lifelines for all these buyers”, Alexandra Mysoor CEO of Alix a platform for estate settlement.
“Sometimes, it’s just a small amount of money that goes to the recipients… But it still changes their lives.”
Beyond the 1%
Mysoor stresses the importance of estate settlement for all income levels, even though wealthier individuals may bequeath larger inheritances.
Even modest savings made during the estate settlement can have a significant impact on heirs. They will be able to reach financial goals more quickly, such as saving for a downpayment.
Unlocking intergenerational Wealth
As wealth continues to flow to millennials, Gen Z and older generations, the trend for inheritance-funded home purchase is likely to accelerate.
Mysoor emphasizes the importance accessible and well-managed inherited wealth to unlock the potential for intergenerational wealth transfers.
She notes that “Inheritance can only be useful if you have it easily accessible and well-managed.”
The intergenerational wealth transfers and their unlocking is very important.
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