Parents backing first-time buyers

SKEWING YOUNG: Real estate agent Dee Southerland shows a Providence home to Meghan Silvestri and her 3-year-old daughter, Nicole Ari. / PBN PHOTO/DAVID LEVESQUE
SKEWING YOUNG: Real estate agent Dee Southerland shows a Providence home to Meghan Silvestri and her 3-year-old daughter, Nicole Ari. / PBN PHOTO/DAVID LEVESQUE

During the housing bubble, many young people wrote off buying property as an expensive preoccupation of their parents’ generation, accessible only to the rich.
Now that property values have tumbled and taken interest rates along with them, many parents are pushing their children to jump into the housing market, local Realtors say. What’s more, those parents appear more willing than ever to contribute some of their hard-earned savings to do it.
“From my experience, the more real estate opportunities have grown, the more parents are being aggressive in urging their kids to make a move and assisting in the reality of home ownership,” said agent Dee Southerland, who specializes in representing first-time homebuyers at Williams & Stuart Real Estate in Cranston. “And in general, the younger the buyer, the more parental involvement there is.”
Of all the sales involving first-time buyers, Southerland estimates at least a quarter involve a significant contribution from family members toward a down payment or closing costs.
“The parents see an opportunity, and that this is the best way they can help their kids,” Southerland said.
According to many in the real estate world, low prices are just one reason the generations are teaming up to get younger members on the property ladder.
While interest rates are at historic lows, lenders have made securing a mortgage more difficult than before the bubble burst, putting a premium on having the down payment and upfront costs paid for to take advantage of good deals.
And with double-digit statewide unemployment coming out of the recession, many young people have already had credit-killing financial problems that make it even more difficult to get a loan on their own.
“A lot of parents are getting involved, and I would say more so in the last couple of years than before,” said Victoria Doran of Coldwell Banker Residential Brokerage in Providence. “One example is a woman whose daughter had just had a short sale, so she would never qualify. So her mother is buying the house.” Other things Doran said she is seeing in the market are parents refinancing their homes for a child’s down payment and sellers being asked to make concessions toward closing costs that will bring down the out-of-pocket expenses.
Unlike five years ago, many sellers are now agreeing to those concessions.
“Sellers would have never understood that a few years ago,” Doran said. “Now they are adding it to the offer.”
Some in the industry see the maturing of baby boomers at the heart of the trend.
In a recent survey commissioned by Better Homes and Gardens Real Estate, one in five baby boomers said they had already either co-signed a loan, lent their children money or given them a gift in order to allow them to buy a home.
The survey, of 1,000 Americans aged 45 or older, found that 10 percent of respondents said they would “definitely” provide financial support for their children or grandchildren while half “hoped” to do so.
“In today’s economy, saving enough money for a down payment can be a struggle for young adults. Baby boomers are a unique generation that has driven the economy for the past 30 years,” said Better Homes and Gardens Real Estate CEO Sherry Chris in releasing the survey.
If baby boomers are using their purchasing power to help generations X and Y become property owners, it may serve to counter a move away from homeownership and toward renting in the last decade.
According to an analysis of 2010 Census data released by the government in October, the 1.1 percentage point decrease in the home-ownership rate between 2000 and 2010 was the largest decline since the Great Depression.
Bruce Lane, of Stuart & Williams, believes in the current opportunities for homeownership so much he’s helped three of his own children buy properties in the last several years. “I would encourage any parent that could comfortably, with disposable income, help to do so because I don’t think our children are going to see 4 percent interest rates in the future,” Lane said. “I do believe we are at the bottom of the real estate market and are inching our way up.”
The standing offer in Lane’s family has been that if one of his children can come up with 10 percent of a down payment on a property, he will match it to achieve the 20 percent that will avoid the need for mortgage insurance.
Offering a match, instead of gifting the entire down payment, ensures that the child is fully invested in the purchase and has proven that they can save money, Lane said.
“Sometime it is better if they have some skin in the game and have displayed the ability to save money,” Lane said.
One practice that Lane said he has seen but does not encourage, is people pushing reverse mortgages to parents who have paid off their homes, so that they can buy for a child.
At the extreme end of the trend, Southerland said she sees some parents buying houses for their children instead of having them use dorm rooms when they head off to college.
With prices in some city neighborhoods so low, Southerland said these parents are figuring that after four years of school, there is a good chance they will be able to sell the property at a profit.
“I find that with the college students, instead of a dorm room, parents are buying houses and condos,” Southerland said. “One girl from Connecticut, instead of paying outrageous dorm fees, her parents saw it as a good investment for the next four years [to buy property] depending on what happens with the market.”
Of course, while the current low prices and interest rates have made it easier to get young people on the property ladder, buying real estate will never be totally without risk.
“Often when something goes wrong, the parents are the ones on the hook,” Southerland said. •

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