The Bank of Mom and Dad is playing a growing role as lender of last resort for a housing recovery struggling to provide more traction for the U.S. economy.
Last year, 27 percent of those purchasing a home for the first time received a cash gift from relatives or friends to come up with a down payment, according to data from the National Association of Realtors. That's up from 24 percent in 2012 and matches the highest share since the group began keeping records in 2009.
Those numbers probably will keep growing this year as younger Americans remain constrained by student debt, tough entry into the job market and stricter mortgage-lending rules that require more cash up front. At the same time, rising stock and property values give their baby boomer parents the ability to assist those wanting to lock in near record-low borrowing costs.
"Without them, the recovery's not sustainable," said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, N.C. Anything that gets more money into first-time buyers' hands "just moves the housing recovery along," she said.
The inability to come up with the down payment was the top reason for renting rather than buying property, according to the Federal Reserve's report on the 2013 economic well-being of households issued in July. The report also showed 10 percent of those leasing apartments last year were looking to buy a house.
Fifty-four percent of first-time buyers in 2013 said their purchases were delayed because the burden of student loans prevented them from saving enough for a down payment, according to the realtors association survey. First-time buyers accounted for 29 percent of previously-owned home purchases in July, compared with about 40 percent historically, data from the agents' group show.
Paychecks are also shrinking for younger Americans. College graduates from 18 to 34 years old working full-time experienced a $3,300 drop in average annual earnings adjusted for inflation from 2007 to 2012, according to a Progressive Policy Institute analysis of Census Bureau data.
Gifts from family are one way the housing market is adapting to less freely flowing credit, said Stuart Miller, chief executive officer of Miami-based Lennar Corp., the second-biggest U.S. homebuilder by stock-market value.
"The barriers are high, and over time the market adjusts to those barriers," Miller said in a Sept. 17 earnings call. "People start saving more down payment. They find a way. They get help from family. They start focusing on credit statistics as rental rates go up."
Younger buyers have also had to compete with an influx of investors scooping up properties -- often with all-cash offers. As fewer deals and less inventory prompt investors to retreat, the field may soon open up for first-time buyers as sellers look to expand the market, said Lawrence Yun, the realtor association's chief economist.
Cash gifts appear to be "happening even to a greater extent this year," Yun said. The association will release 2014 survey data Nov. 3.
The boomers have seen their retirement savings almost double since the end of the recession. They had an average $147,700 in their 401(k) accounts in June, up from $76,500 five years earlier when the economic slump ended, according to data compiled by Fidelity Investments.
Young people's "ability to save up a down payment is much more difficult today than it was in previous generations," said David Stevens, chief executive officer of the Mortgage Bankers Association in Washington. "It's an uneven recovery because a lot of the personal wealth that's being created is by people who have homes currently or who have money in the stock market. Younger borrowers have neither, so they're not a beneficiary of this recovery as much as the boomer generation."
With their wealth rebuilding, some of those older Americans would rather decide for themselves how it's doled out and see their offspring enjoy the benefits now while they're still around rather than leave it to the vagaries of the probate process.
According to the Internal Revenue Service, each spouse can make a gift of $14,000 to a child or other individual and be excluded from paying taxes.
Current property owners are also benefiting from home-price appreciation that has helped recover losses after the market's bust. Home values have climbed 24.1 percent since their trough in 2012, according to the S&P/Case-Shiller nationwide index.
The increase in such cash gifts also has lenders on guard against unstable sources of down payment funds.
"The regulatory agencies are very, very specific about the paper trail requirements," said Staci Titsworth, a regional loan officer in Pittsburgh who works in the mortgage division of PNC Financial Services Group Inc. "It truly needs to be a gift with no expectation to repay, because once expectation to repay comes into the equation, now you've got borrowed funds for down payment, which is unacceptable."
Information for this story was contributed by Alexis Leondis and John Gittelsohn of Bloomberg News.
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