What is the first thought you have upon reading that headline? Perhaps that parents are giving money to their adult kids to buy their first home?
The headline – and the media story – are misleading. The financial support includes inheritances, gifts and loans from parent to adult child.
The report cites one (and only one) anecdotal example:
Redfin chief economist Daryl Fairweather admitted that she falls into the category of a ‘nepo homebuyer’ after her mother helped her secure a property in 2015 when she was 27.
The rise of the ‘NEPO’ homeowner! Four in ten under-30s rely on family money to cover their down payment on a property | Daily Mail Online
Let’s practice factfulness. Fairweather attended MIT and then the University of Chicago for her PhD. Per her LinkedIn page, she appears to have just graduated from the University of Chicago in 2014 – and bought a property in the next year (2015). Of course she likely did not have the cash for a down payment.
The cost of attending MIT (in non-subsidized dollars, including housing and living expenses) is $82,730 per year or about $331,000 per year in terms of 2023. Tuition for a PhD degree at The University of Chicago runs about $100,000 per year, each year of pursuing a PhD (not including housing and living expenses). From her LinkedIn page, she appears to have spent 4 years – or $400,000 – pursuing her PhD.
The list price is about $331,000 for MIT, plus $400,000 for the University of Chicago, and a standard $20,000/year for living expenses, or another $80,000. At list price (highly unlikely she paid list price), that would be $811,000 for her education (in 2023 non-subsidized prices). Many PhD students receive stipends and other grants, and she likely received undergraduate scholarships and discounts to, so we do not know what she actually spent; indeed, it is highly likely her costs were far less than the list price.
Context matters #1: She made decisions that will pay off well in the long term, but those decisions likely have other considerations, such as not having money to buy a house the year after graduation. She is a highly educated and an outstanding real estate economist. She and her family moved to a rural location in Wisconsin for lower prices – because their white-collar work permits them to work remotely, unlike most workers.
This report should have picked additional individuals for their anecdotes – or are we to assume the others are in similar situations? Is Fairweather representative of the sample who are challenged to afford a home and receive parent support?
Context matters #2: This report refers to buyers under age 30. The average age of a first time home buyer in 1981 was – surprise – 29 – and was 33 in 2021 (in the midst of the Covid pandemic and restrictions). Not as big a change as the media would have you believe. Additionally, the percent of singles buying a home has increased quite a bit since 1981.
Context matters #3: What does parental help mean in terms of buying a home? Was it a gift or a loan or an inheritance? Due to tax rules, the giver must pay Federal taxes on gifts greater than $17,000 per person in 2023. Giving a large gift becomes expensive. Some parents may be loaning the money to their child – and this loan must be documented and paid back to be exempt from IRS gift taxes. This report from 2018 said that then, most help may have been gifts. But this also includes inheritances due to the death of a parent or grandparent.
