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With the fall buying season in full swing and mortgage rates nearing the 8 percent mark, potential homebuyers are facing affordability challenges, forcing some adults to move back in with their parents while they save for a home.
“While homebuyers have long received financial support from family members to afford a home purchase – particularly first-time homebuyers who may not yet have built up equity – we are seeing more and more potential buyers take this a step further,” it said Clare Trapasso, senior news editor, Realtor.com.
Research shows that half (51%) of respondents planning to buy a home within the next 12 months may rely on their parents to help them prepare for the home purchase. Nearly a third (29%) say they have already moved in with their parents to save money to buy a home, and another quarter (22%) say they would consider doing so, according to a recent survey from Realtor. com and Censuswide.
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What is causing this trend?
Hannah Jones, economic analyst at Realtor.com, tells FOX Business that rising rents and inflation have limited potential homebuyers’ savings potential in recent years.
“As a result, hopeful buyers have had to look for creative solutions to home ownership,” she says. “It’s not surprising that these potential buyers have turned to other family members, many of whom may have more space, lower costs and a desire to help.”
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How much can these adults living with their parents save?
Potential savings vary greatly depending on location and specific agreements.
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“Assuming that these potential buyers are not required to pay rent to their family members, buyers could save more than $20,000 on rent in a year of living with family, based on the national average rent going out in August,” Jones reports. “While this amount alone isn’t enough for a down payment on a mid-priced U.S. home, it can help boost existing savings down the line.”
How long do adult children spend on average with their parents?
Jones says Realtor.com doesn’t have data on how much time respondents specifically plan to live with their parents. However, she says respondents indicated their purchasing intentions within the next year, so the survey pool could be assumed to be 12 months or less.
A neighborhood in Teaneck, New Jersey on November 24, 2022. (Photographer: Yuvraj Khanna/Bloomberg via Getty Images / Getty Images)
Is the problem because it is difficult to pay high rental costs and save for a home?
Although rental prices have lost momentum in recent months, Jones said they are still nearly 25% higher than pre-pandemic times, according to August rental data.
“High rental prices and increased inflation make it difficult to save for a home purchase, especially when home prices are more than 35% higher than before the pandemic,” she continues.
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Compared to a few years ago, many would-be buyers are paying higher rent and facing higher living costs while trying to save for a down payment on a more expensive home, she says.
Do mortgage interest rates also influence this dynamic?
Jones said mortgage rates hit a multi-decade high in October, and combined with still-high home prices, the monthly cost of financing a home purchase is more than double what it was four years ago.
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“Moving in with family or friends can be an effective down payment savings strategy, but the monthly cost of the home will also be a barrier to entry for many potential buyers,” she says.
She also says homebuyers can minimize the size of their loan and mitigate the impact of today’s mortgage rates by either saving for a larger down payment or purchasing a less expensive home.