REAL ESTATE TOPICS...New Study Examines Impact of Parental Money on Millennial Homebuying

By Patrick Sisson

The potential and limitations of the “Bank of Mom and Dad”

How much does parental support help aspiring young homeowners?  According to a new working paper, "The Role of Parental Financial Assistance in the Transition to Homeownership by Young Adults," the probability of becoming a homeowner jumps 23 percent among adult children who receive a money transfer from their parent, based on data from the Health and Retirement Survey (HRS).

Not surprisingly, receiving money from one's parents—defined by a gift on $5,000 or more over the last two years, assistance received by 1 in 17 young adults between ages 20 and 49—help many get over the hurdle of making a down payment, the biggest obstacle to homeownership, according to half of young renters. But what the report commentary calls the "Bank of Mom and Dad" has its limitations. Other sets of data examined in the study suggested no correlation between parental wealth transfer and homebuying, a discrepancy that may explain why this is the first in a series of reports that researchers plan to release on the topic.

Many of the other conclusions of the report, written by Professors Dowell Myers, Gary Painter, and Julie Zissimopoulos of the University of Southern California, reinforce previous research. The paper noted that children with parents in the 4th quartile of the wealth distribution are 4.5 percentage points more likely to become homeowners than children with parents in the bottom quartile. They also determined that age and race can play a significant role; non-Hispanic whites are several times more likely to receive a transfer than Hispanic or black counterparts.

The report also noted that children of less educated parents, all other resources held constant, are more likely to be home buyers than the children of college graduates. This factoid may be suggestive of the different degrees of stratification found in society, caused in part by increasingly expensive urban housing markets and the clustering of jobs by both educational attainment and location.