An Unexpected Benefit of Lower Housing Prices



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Low, and/or declining property values in many areas across the country have created a kind of investor’s nirvana, where previously untouchable property suddenly comes within reach.

Investors, however, are not the only ones buying up properties these days. Better Homes and Gardens Real Estate conducted a survey recently which determined that one out of five baby-boomer couples have helped their children to secure a home of their own, either by buying it for them,  assisting with the down payment or co-signing on the mortgage.

John Boschen, professor of economics and finance at the College of William and Mary’s Mason School of Business credited, among other things, low interest rates and housing prices with the trend.

“The parents-(or family)-helping-kids-buy-a-house phenomenon has long been prevalent in other countries, especially in developing countries,” said Boschen.

“This traditionally has been because there is no access to long-term home loans that feature low down payments in these countries. In other words, the credit markets there don’t work to extend credit to younger people against their future income as in the U.S.”

Boschen also noted that tightened lending standards, such as requiring a larger down payment, are contributing to this trend as well.

David Wilkey, chairman of the Hampton Roads Realtor Association and managing broker with Rose & Womble Realty’s Chesapeake office, is familiar with down payment gifts, however he has recently witnessed something that he hadn’t seen in his 20+ years of doing business – 2 different individuals who bought their family member a home outright.

One of them was a father who bought the home for his son and the other was a grandfather who purchased property for his granddaughter and her family.  “I was told, first of all,” said Wilkey, “[that] she wouldn’t have qualified.”  Wilkey noted that the grandfather also wanted her to be in a neighborhood where she could feel safe.

Until market conditions change drastically, this trend may grow even more prevalent. What about you? Have you assisted your child(ren) with their home purchase or are you the recipient of your family’s generosity? If you’re a realtor, have you seen an increase in this kind of activity?

Comments

  1. I just met a guy over the weekend who told me that he is co-signing for his son to buy a fixer upper. The seller is an investor who bought the house at a foreclosure auction. It was in an excellent location, but needed updating of kitchen and bath. The buyer is a single guy. He and his father plan to update the house themselves. They bought it for about $45,000 – 3 bed 1.5 bath brick ranch with hardwood floors, built in 1960’s. In 2005 that house had been valued at over $150,000. This is a great way for buyers to have instant equity in a market that people think is “bad”. It’s all in what side of it you are on.