Why are so many Millennials struggling to buy their first home? @hlee82, @ProfDowellMyers, @GaryDeanPainter, Johanna Thunell, & @julieziss have an answer in the Journal of Housing Economics… sciencedirect.com/science/articl… 1/
Half of young renters say they can’t afford the down payment and closing costs to get a mortgage, so how do first-time home buyers overcome the constraint? 2/
One possibility: One-fourth of first-time home buyers receive a gift, usually from their parents, to help with the down payment. So…how much difference does it make? 3/
Following the same young adults in the Health Retirement Survey (HRS) from 1998 to 2004, their home buying rate goes up significantly from 20.5% to 23.6% if they get a transfer over $5,000 from their parents, controlling for child and parent characteristics… 4/
This effect is the same size as the difference in homeownership between non-Hispanic whites and Hispanics in the model – and about half the size as the difference between whites and blacks… 5/
The sample size is smaller in the Panel Study on Income Dynamics, but the longer time period allows the authors to break it up into pre- and post-recession – and guess what? The effect is only significant post-recession – and twice as large as the HRS estimate… 6/
In other words, Millennials have reason to complain: It’s gotten harder for them to buy homes without their parents’ help – and guess who gets that help? 7/
That’s right: It’s significantly skewed by parents’ wealth. Your odds of getting a transfer from your parents doubles if you jump from the bottom quartile to the second quartile of the wealth distribution… 8/
And it doubles again if you jump to the third quartile, and again if you jump to the fourth: From 1.1-1.4% of kids at the bottom getting the help they need to 12.9-14.7% getting it at the top… 9/
And even after you control for those transfers, parents’ wealth still has a huge effect in the model: For every 1% increase in your parents’ wealth, your odds of being able to buy a home go up 5.4 percentage points… 10/
So, in addition to the fact that more wealth is concentrating in the hands of fewer people, it turns out that that wealth is more needed than ever before to achieve the American dream. 11/11
