The American dream of homeownership is increasingly tied to inherited wealth, as a record number of first-time buyers rely on inheritances to navigate a historically challenging housing market.
Skyrocketing prices, substantial down payments, and an aging buyer pool paint a picture of a market accessible primarily to the affluent, leaving many aspiring homeowners struggling to gain a foothold.
The rise of inheritance-funded home purchases
The National Association of Realtors (NAR) latest report reveals a stark reality: 7% of first-time homebuyers utilized inherited funds for their down payments last year, more than double the rate for repeat buyers.
This trend underscores the growing wealth divide in the housing market, where access to family wealth increasingly determines who can afford to buy a home.
The affordability gap: older, wealthier buyers dominate the market
The profile of the typical homebuyer is shifting, with older and wealthier individuals dominating the market.
First-time buyers, traditionally younger and less affluent, now represent a shrinking share of the market, their lowest since 1981.
The median age and income of first-time buyers have also reached record highs, further highlighting the affordability challenges faced by younger generations.
Down payments surge: competing in a cash-heavy market
First-time buyers are now making the largest down payments in nearly three decades, a testament to the competitive pressures of a market where all-cash offers are increasingly common.
For many, an inheritance provides the crucial financial boost needed to bridge the affordability gap and compete in this challenging environment.
The great wealth transfer
The reliance on inheritance for home purchases coincides with a projected $84 trillion intergenerational wealth transfer over the next two decades.
This massive transfer of wealth is expected to further exacerbate existing inequalities, as only a segment of the population will benefit from inherited assets.
“These inheritances have become a lifeline for all these young buyers,” Alexandra Mysoor, CEO of Alix, an estate settlement platform, told Fortune.
“Sometimes it’s a small amount that goes to the beneficiaries… And it’s still life changing.”
Beyond the 1%
While wealthier individuals can bequeath more substantial inheritances, Mysoor emphasizes the importance of effective estate settlement for individuals across all income levels.
Even modest savings during the estate settlement process can significantly impact heirs, enabling them to achieve financial goals like saving for a down payment more quickly.
Unlocking intergenerational wealth
As wealth continues to flow from older generations to millennials and Gen Z, the trend of inheritance-funded home purchases is likely to accelerate.
Mysoor underscores the importance of accessible and well-managed inheritance to unlock the potential of intergenerational wealth transfer.
“Inheritance is only useful if it’s accessible and well managed,” she notes.
“That intergenerational wealth transfer and unlocking it is really important.”
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