Over the past several years, housing leaders have waited anxiously for the largest generation in our nation's history to settle down, buy homes and breathe new life into our struggling housing market. Hopes are still high that at long last this year's buying season will attract waves of Millennial-aged first-time buyers.
Incomes are up, rates are low, prices are moderating and new incentives -- like the low down payment programs from the GSEs and FHA's reduced mortgage insurance premiums -- sweeten the prospects.
And for one out of eight Millennial homebuyers (15 percent), there's an even more important reason they'll be able to buy a home in the near future: The Bank of Mom and Dad.
Parents have played a major and unheralded role in our nation's housing economy for generations, helping with down payments, paying down their children's student loans, or helping them save money in a half-dozen other ways.
But this year, a parent's support could spell the difference between a healthy housing recovery and a potential tailspin similar to the one last fall that put our nation's housing economy on hold.
A new study by loanDepot LLC on Millennials and home buying found reasons to be both encouraged and concerned about The Bank of Mom and Dad and the role they'll likely play in the future.
A Helping Hand: Thirty-one percent more parents expect to help their Millennial-aged children buy a home in the next five years compared to previous years, an increase from 13 to 17 percent. And their support hasn't gone unnoticed -- 75 percent of Millennial-aged first-time buyers said their parent's financial support made it possible for them to buy a home. Based on current market conditions, without their parent's support, it's likely the pool of first-time buyers would be even smaller than it is today.
Wallets Open Wider: In the future, parents said they'll be more willing to open their wallets to pay the living expenses of their Millennial-aged children or pay down their student loan debt to help them save to buy a home.
Boomerangers: Fifty-five percent of parents expect to welcome their children back to the nest or allow them to stay home than in the past so they can save money faster, something parents of all economic classes can do to help their children secure a piece of the American dream.
Down with Down: Fewer parents intend to fund down payments, and those who will say they'll provide a smaller percentage in the future. Because many first-time buyers already struggle to scrape up money for a down payment, this isn't great news.
The upshot? While parents will look less to their savings and won't fund down payments to the extent they have in the past, they'll do what's necessary to help their Millennial-aged children buy a home.
While 65 percent of parents told loanDepot they'll still use their savings, twice as many expect to refinance and cash out equity from their homes compared to years past.
But many parents, like millions of other homeowners, will find they can't refinance and access the cash necessary to help their children buy a home. Last year, about 37 percent of refinance applications were denied, including former Fed Chairman Ben Bernanke's, because of strict lending standards that discriminate against the self-employed. Today, one out of five homeowners with a mortgage still lack the equity to refinance because they haven't regained valued lost in the housing crash.
This year home values aren't expected to grow significantly and lending requirements, while loosening, are keeping first-time buyers on the sidelines. They're also keeping parents from refinancing to come up with the cash they need to help their children buy a home.
Where will The Bank of Mom and Dad go if they can't refinance due to overly tight lending standards or if tapping their savings is no longer an option?
The survey found eight percent of parents expect to take out an unsecured personal loan to help their children buy a home. More than double compared to previous years. Some (four percent) will borrow from their 401K, while others (five percent) will sell equities.
Through the loanDepot survey, we have a better understanding of how important parents are to our nation's housing economy through their commitment to help their children become homeowners. We also confirmed the interests of parents and their Millennial-children are bound in ways that are not so obvious.
But one thing is clear: Keeping The Bank of Mom and Dad healthy is in everyone's best interest -- their children's, home sellers, homeowners and our nation's economy.
Anthony Hsieh is the CEO and Chairman of loanDepot, LLC, America's consumer lender. A 30-year mortgage industry veteran and lending trendsetter, he has successfully navigated through economic and credit cycles and is known for his integrity, innovation and market timing. He lives in Orange County, CA and works from both of loanDepot's dual headquarters in Foothill Ranch, CA .